Advancing, declining

Q. What’s the “advancedecline” ratio? — G.K., Decatur, Illinois

A. It’s an indicator that some people use to gauge market sentiment. It simply takes the total number of stocks that are trading above where they last closed and divides that by the total number of stocks trading below where they last closed.

There are close to 6,400 stocks on the New York Stock Exchange and the Nasdaq Composite combined. If 4,000 of them are trading higher than their last closing price while 2,400 are trading at a lower level, the advance-decline, or A/D, ratio would be 4,000 /2,400, or 1.67. A number above 1.0 suggests a bullish market while a number below suggests a bearish one.

The A/D ratio can be insightful because many stock indexes are weighted to heavily favor large companies and do not reflect how small companies are doing. The

A/D line treats each company equally, as a single data point.

When the A/D ratio diverges from big indexes — for example, it’s been showing more companies falling than rising while the major stock indexes have risen — that may be a sign of trouble ahead.

In general, it’s best to avoid trying to time the market. Simply invest your long-term dollars in great companies trading at reasonable prices — or in low-fee, broad-market index funds.

Q. What do brokerages charge to buy or sell a stock? — H.D., Biloxi, Mississippi

A.

Decades ago it might have cost you hundreds of dollars, but these days major brokerages typically charge less than $10 per trade while many charge $0. Good brokerages also generally offer other services too, such as stock research, banking and/or financial planning.

Is your company in trouble? It’s vital to keep up with your stock holdings regularly. This can help you notice if a company seems headed for trouble. If things get really bad, it might even file for bankruptcy protection, which is generally a disaster for shareholders, causing them to lose most or all of their investments.

Here are some red flags:

If a company has taken on a lot of debt and is close to not being able to meet its obligations, that’s a big worry. Many companies make good use of borrowed money to fuel growth, but they should have enough cash coming in to cover debt repayments. You might spot growing debt and shrinking cash on a company’s financial statements, or you might read that the company is trying to restructure its debt — or that it might miss an interest payment.

On a company’s income statements, if you see revenue (sometimes referred to as sales) declining, that’s a concern — as is shrinking income (or widening losses).

Ideally, a company’s revenue and income will both be growing. There may be periods without growth, but if so keep an eye on the situation. If revenue is declining while debt is growing, that’s a major red flag.

A dividend being reduced, suspended or eliminated can also be a red flag as it means the company needs that cash for something else, even though it had planned to pay it to shareholders. Companies seldom take such actions unless they must.

Major changes in leadership, especially sudden ones, can be a sign of trouble too — though sometimes new leaders can turn the business around, making it prosper again.

If you see any worrisome signs from a company in which you’re invested or are thinking of investing, take time to dig deeper. You’ll need to find out if its troubles seem temporary or lasting — and whether it seems to deserve your continued investment.

If it’s no longer among your most promising stocks, move that money into an investment that you like better.