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Computerized Investing > Fourth Quarter 2012

Gauging Market Direction: Market Breadth Data

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by Wayne A. Thorp, CFA

The goal of fundamental investing is to find companies that will be able to generate increasing earnings and dividends over time which, in turn, will power share prices upward. However, as we know, stock prices do not exist in a vacuum. Most of us have probably spent a good amount of time researching what we consider to be the “perfect” stock, only to see its price fall after we have bought it. This is because the overall market trend has a tremendous impact on individual share prices. Therefore, having an idea of where the market is headed can be beneficial to your investing success.

While indexes such as the S&P 500 index garner a lot of attention in the financial press, the movements of many stocks are not captured by any market index. Therefore, many technicians and traders follow market breadth indicators to get a feel for how widely the full range of stocks is participating in the movement of the market.

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