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Computerized Investing > May/June 2002

Gauging Market Trends: Market Breadth Data

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by Wayne A. Thorp, CFA

Stock prices do not exist in a vacuum. While many company- and industry-specific issues affect a given company’s stock price, the overall temperament of the market also plays an important role in dictating whether a stock price rises or falls. Gauging the overall health of the stock market can help you understand the forces impacting specific stocks in your portfolio. While popular indexes such as the S&P 500 help to indicate the direction of the largest companies, the movements of many stocks are not effectively captured by most market indexes. Investors turn to market breadth indicators to gain a feel for how widely the full range of stocks is participating in the movement of the market. Market breadth indicators are the aggregate of data from multiple stocks. They are oftentimes used to determine whether the market is in an uptrend or downtrend as well as to identify market tops or bottoms.

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