What Is Market Breadth?
Let me explain market breadth to you directly: it's about analyzing how many stocks are advancing compared to those declining in an index or exchange like the NYSE or Nasdaq. When more stocks are going up than down, that's positive breadth, showing bulls are driving the momentum and supporting an index rise. On the flip side, if declining stocks dominate, it confirms bearish momentum and a likely drop in the index.
Some indicators factor in volume too—they check not just price direction but the volume behind those moves, since high-volume changes carry more weight than low-volume ones.
Key Takeaways
You should know that market breadth examines the balance between advancing and declining securities. It's a technical tool to measure the strength of index moves. More advancers signal bullish sentiment and uphold uptrends, while more decliners confirm bearish trends and down moves. Remember, volume can be part of some indicators.
Understanding Market Breadth
Think of market breadth as a way to see how many stocks are truly joining in on an index's move. An index might climb, but if over half its stocks are dropping, it's because a few big winners are pulling it up. I use breadth indicators to spot this, and adding volume gives you a clearer picture of overall stock behavior.
The point is to uncover hidden strength or weakness in an index that a simple chart misses. This helps you predict what might happen next. Lots of advancing stocks mean bullish sentiment, aligning with uptrends; lots of decliners mean bearish, matching downtrends. Many indicators track advancers/decliners or 52-week highs/lows to judge if trends will hold.
Traders like me rely on these for market health checks—they can warn of index drops or rises ahead of time.
Market Breadth Indicators and Uses
There are various breadth indicators, each calculated differently, some using advancers/decliners, others prices against benchmarks, and a few with volume. You monitor them for confirmation—when the indicator rises with the index—or divergence, where they split, hinting at a reversal.
Be aware, these aren't great for timing; signals can come too early or miss reversals entirely.
Sampling of Market Breadth Indicators
- Advance-Decline Index: A running total of advancers minus decliners; watch for divergence with indices like the S&P 500 to spot momentum shifts.
- New Highs-Lows Index: Compares 52-week highs to lows; below 50% might signal a bear market, with extremes for contrarian trades.
- S&P 500 200-Day Index: Shows percentage of stocks above their 200-day moving average; above 50% indicates strength, extremes highlight overbought/oversold.
- Cumulative Volume Index: Adds volume for risers as positive, decliners as negative, tracking overall volume direction like the A/D line.
- On-Balance Volume: Counts full daily volume as positive if the index rises, negative if it falls, building a running total for similar use.
Example of Market Breadth Analysis in Action
Consider the SPDR S&P 500 ETF chart with on-balance volume and cumulative volume index. During a left-side rise, the cumulative index confirmed by hitting new highs, but on-balance volume stayed flat, warning of weakness that led to a sharp decline. When the ETF rebounded, both indicators followed suit.
What Is Meant by Market Breadth?
Simply put, it's about the market's breadth—gauging move strength by how many stocks rise versus decline.
What Is Market Breadth and Depth?
Breadth assesses index move strength or weakness. Depth is how well a market absorbs large orders without big price swings.
Is Market Breadth a Good Indicator?
These indicators pull from price and volume to read sentiment, but always confirm with price action. Don't trade solely on them—use price as the final check.
The Bottom Line
When we talk market breadth, it's technical indicators evaluating index price moves. An index can rise while most stocks fall, and breadth spots that. Use it to confirm price action: more advancers mean bulls rule, more decliners mean bears do. This momentum can signal ongoing trends.
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