| Stock market breadth indicators (also known as | | | | line. What investors should look for here is strong |
| internal indicators) are tools an investor can use to | | | | participation in the predominant price trend by a |
| measure the strength of a price trend in the overall | | | | majority of companies in the index that you are |
| stock market. Using these indicators can help you | | | | following. |
| know when to be in, or out, of the market. This | | | | The second way internal indicators can help you is by |
| article highlights three ways market breadth indicators | | | | summing the volume of advancing or declining stocks |
| can help you improve your investing results. | | | | within the index you are watching. This indicator is |
| First, lets look at what a stock market breadth | | | | also widely publicised, and again, what you should look |
| indicator is. Many investors like to look at stock | | | | for is advancing volume to be strong vs. declining |
| indexes, like the S&P 500 index or the Dow | | | | volume in a bull market, and the reverse in a bear |
| Jones Industrial Average, to see how the stock | | | | market. |
| market is trending as a whole. As you probably | | | | The third way breadth indicators can help your |
| already know, these two broad market indexes are | | | | market analysis is by counting the number of stocks |
| calculated in completely different ways, with the | | | | reaching new yearly highs versus new yearly lows. |
| S&P 500 being market cap weighted (i.e. larger | | | | Obviously you want to see more new highs in a bull |
| companies have a bigger influence on the index than | | | | market, and more new lows in a down trend. |
| smaller companies), and the Dow Industrials being | | | | What all three of these types of breadth indicators |
| price weighted (i.e. higher priced stocks have a bigger | | | | have in common is that they are good at showing |
| influence on the index than smaller priced stocks). As | | | | potential turning points in the market when their |
| you can see from how these stock indexes are | | | | trend starts to diverge from the direction of the |
| calculated, the price movement of a few stocks can | | | | index price. For example, if the price of the S&P |
| actually mask the price movement of many other | | | | 500 index is moving higher, while advancing volume |
| stocks in these indexes. | | | | and advancing issues are declining, you should |
| With the previous explanation in mind, lets look at | | | | exercise caution if you are thinking about purchasing |
| three ways stock market breadth indicators can help | | | | a stock, because fewer stocks are participating in |
| you see what is really going on in the market. | | | | the rally, indicating people are pulling money out of |
| The first way stock market breadth can help is by | | | | the market. |
| tallying the number of issues advancing or declining in | | | | There are many books written on the subject of |
| price. You may have heard this referred to as | | | | stock market breadth, and doing some research in |
| advancing vs. declining issues, or the advance/decline | | | | this area should help you be a better investor. |