Gauging Market Direction With Market Breadth Data

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.

Market breadth indicators are the aggregate of data from multiple stocks and are used to determine whether the market is in an uptrend or downtrend or is moving sideways as well as to identify market tops or bottoms.

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Wayne A. Thorp, CFA is a vice president and senior financial analyst at AAII and editor of Computerized Investing. Follow him on Twitter at @AAII_CI.


L Fairley from California posted about 1 year ago:

I have to absorb this in pieces! After that, I hope to apply it in trading.

Steve Jagers from Ohio posted about 1 year ago:

Something is wrong with the PDF file. It won't download properly. Error messages says the file is damaged.

Kenneth Eastman from Florida posted about 1 year ago:

PDF works fine on my MAC BOOK PRO. 10/10 09:48

Jerry Czajkowski from New York posted about 1 year ago:

Please provide ez links or keywords to these charts, not just the websites.

Anjan Ghose from California posted about 1 year ago:

Is there a recommended website that charts these moving averages that I can examine periodically, instead of doing this on my own?

Vaidy Bala from posted about 1 year ago:

Are there simple steps that investors look at for market strength and or direction through charts? Any sites, specific, to help me is appreciated.

Fernando Robles from Florida posted about 1 year ago:

For those of you who want a chart website for market breadth, the article mentions StockCharts. Go there, look under "free charts," then look for "market breadth."

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