Diffusion Index Explained

What Is a Diffusion Index?

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Question

A diffusion index is equal to -

Answers

A. the daily total of advancing stocks plus one-half the number of unchanged stocks, divided by the total number of stocks traded.

B. the daily total of advancing stocks divided by the number of declining stocks.

C. the daily total of advancing stocks plus one-half the number of unchanged stocks, divided by the number of declining stocks.

D. the daily total of advancing stocks divided by the total number of stocks traded.

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Explanations

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A. B. C. D.

The diffusion index is an alternative specification of advance-decline series, and is used as an indicator of the direction of the market. If the index reaches up to levels of 56 to 60, the market is considered overbought. If it comes down to levels of 40 to 44, the market is considered over oversold.

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