The persuasion of monitoring breadth comes from the fact that index motion yesteryear itself tin terminate hold upward deceptive. Because most of the major stock marketplace indexes are capitalization weighted, a pocket-sized proportion of large cap shares tin terminate disproportionately influence the overall index movement. For instance, the wide listing of NASDAQ shares may non hold upward specially strong, simply company updays inwards $GOOG in addition to $AAPL tin terminate force the NASDAQ 100 Index higher.
As a rule, breadth narrows every bit intermediate in addition to longer-term bull moves age. At of import intermediate-term lows, nosotros oftentimes meet something similar: the bulk of shares volition brand lows ahead of the overall indexes. If a marketplace has been rising alongside an increasing let on of stocks making fresh novel highs, my working hypothesis is that a uptrend is intact. When nosotros meet divergences--higher index prices alongside fewer shares participating inwards the strength--my hypothesis is that nosotros may hold upward topping out.
There are many ways of mensuration marketplace breadth. One of the most pop is also my to the lowest degree favorite: advance-decline lines. I abide by those are slower to selection upward divergences than measures of the let on of stocks making fresh novel highs in addition to lows. Another mensurate that I similar in addition to volition postal service nearly soon is the proportion of stocks trading inwards a higher house their moving averages.
The inwards a higher house nautical chart is unique inwards that it looks at the let on of mutual stocks across the major indexes that are making fresh three-month highs minus those making three-month lows. I obtain these information from the Barchart site, which also posts other useful technical data. In a longer-term uptrend, peaks in addition to troughs inwards the novel high/low information volition hap at higher cost points; vice versa for downtrends.
You tin terminate meet that novel highs vs. lows direct maintain been waning inwards the concluding few days, simply also since belatedly December. I am watching this closely, every bit it suggests that nosotros may hold upward toward the transcend of a rangebound consolidation catamenia inwards stocks at the really least--especially given the expansion of novel lows during the most recent marketplace drop.
Further Reading: Derek Hernquist on Market Breadth
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