A Look at the Big Picture: Measures of Market Breadth

by Wayne A. Thorp

Stock prices do not move in isolation. While there are numerous company- and industry-specific issues that can impact a given company’s stock price, the overall temperament of the market also plays an important role in dictating the course of individual stock prices.

The financial press likes to quote the movement of major market indexes, such as the Dow Jones industrial average and the S&P 500, as a barometer of the stock market’s overall health. However, the movements of many stocks are not effectively captured by most major market indexes.

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For this reason, many investors turn to market breadth indicators to gain a feel for the full range of stocks participating in the movement of the market. These breadth indicators are the aggregate of data from multiple stocks, and are often used to determine whether the market is in an uptrend or downtrend, as well as to identify market tops and bottoms.

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