"[1] The daily volume of the New York Stock Exchange and the NYSE Composite Index's advances and declines drove Dysart's indicators.
What can be interpreted about Dysart's NVI is that whenever it rises above a prior high, and the DJIA is trending up, a “Bull Market Signal” is given.
In 1969, he articulated one rule: “signals are most authentic when the NVI has moved sideways for a number of months in a relatively narrow range.” Dysart cautioned that “there is no mathematical system devoid of judgment which will continuously work without error in the stock market.” According to Dysart, between 1946 and 1967, the NVI “rendered 17 significant signals,” of which 14 proved to be right (an average of 4.32% from the final high or low) and 3 wrong (average loss of 6.33%).
In 1969, Dysart reduced the weight he had previously given to the NVI in his analyses because NVI was no longer a “decisive” indicator of the primary trend, although it retained an “excellent ability to give us ‘leading’ indications of short-term trend reversals.” A probable reason for the NVI losing its efficacy during the mid-1960s may have been the steadily higher NYSE daily volume due to the dramatic increase in the number of issues traded so that prices rose on declining volume.
Norman G. Fosback has attributed the “long term increase in the number of issues traded” as a reason for a downward bias in a cumulative advance-decline line.
Fosback studied NVI and PVI and in 1976 reported his findings in his classic Stock Market Logic.
He did not elucidate on the indicators’ background or mentioned Dysart except for saying that “in the past Negative Volume Indexes have always [his emphasis] been constructed using advance-decline data….” He posited, “There is no good reason for this fixation on the A/D Line.
Somehow this point has escaped the attention of technicians to date.” The point had not been lost on Dysart, who wrote in Barron’s, “we prefer to use the issues-traded data [advances and declines] rather than the price data of any average because it is more all-encompassing, and more truly represents what’s happening in the entire market.” Dysart was a staunch proponent of using advances and declines.
Fosback's versions of NVI and PVI are what are popularly described in books and posted on Internet financial sites.
Although some traders use Fosback's NVI and PVI to analyze individual stocks, the indicators were created to track, and have been tested, on major market indexes.