Definition of 'Diffusion Index'
1. A measure of the percentage of stocks that have advanced in price or are showing a positive momentum over a defined period. It is used in the technical analysis of stocks.
2. A measure of the breadth of a move in any of the Conference Boards Business Cycle Indicators (BCI), showing how many of an indicators components are moving together with the overall indicator index.
Investopedia explains 'Diffusion Index'
1. The diffusion index is one of the many different tools used by technical analysts to increase the probability of picking winning stocks. Also known as the advance/decline diffusion index.
2. The diffusion index can help an economist or trader interpret any of the composite indexes of the BCI more accurately - the diffusion index breaks down the indexes and analyzes the components separately, exhibiting the degree to which they are moving in agreement with the dominant direction of the index.