Looking at the breadth of the market means we want to take a step back and try to look across the whole of the marketplace. Generally - the market is divided between growth and value, stocks and bonds, small caps and large caps, ect ect. but there are times where everything is doing one thing and that stands out (if) when we go looking for it.

There are more choppy days than trend days - and more often we will find "some bullish" or "some bearish" markers without finding "everything" doing one thing. With Breadth - we want to consider what the masses are doing. Are most stocks up today? Are most stocks down today? Is there a select group of stocks that are up or down?

We have a lot of different breadth tools that have been developed over the years; popular breadth tools include Advance Decline and Cumulative Volume but there are breadth tools that are used intraday and then there are breadth tools used for swing trading and deeper market insight.

Intraday

Advancing vs Declining Issues
Buying Volume versus Selling Volume
Cumulative TICK
NYSE TICK
Weighted Advance Decline
Sectors (risk on Sector, risk off Sector, and midline Sector)

Total Market Strength

"stocks above their 200MA"
"stocks above their 50MA"
Cumulative Volume Index
Advance Decline Ratio
McClellan Oscillator
Cumulative 4-week New Highs / New Lows

Using Breadth

When it comes to using breadth tools - things are less complicated than many believe. Generally speaking, the breadth tools are often just noise more than they are a signal.

You'll find that these tools can be slightly bearish or slightly bullish and yet the market just continues to trade in a range or has no real bearish / bullish bent. You'll also find that these breadth tools do not always agree; some will be neutral or bearish or bullish in a combination; and the market just chops around.

It’s important to be up-front about the noise right away. If there is no signal there or if the signal is there but its weak then we want to look somewhere else for market insight.

Sector Analysis

There are 11 “Major” sectors but there are many more sectors than these “major ones.” All of these sectors are a representation of a group of stocks. When we are looking around the markets - the sectors can be a fast way to answer “what’s moving today.”

While the “Major” sectors are major for a reason - they are not the “whole of the market” - so keep this in mind in the future. The 11 major sectors are broken into three groups: Risk On, Risk Off, and “Mid-Line” sectors.

On a bullish day in the markets - we would want to see that the “risk on” sector is green and also bullish. On a bearish day in the market - we would expect to see the “risk on” sector red or flat. If the broad market is bullish or bearish but the sectors are not … then we want to continue looking for the reason why markets are moving today.

Proper Signals

When we get a proper signal we want to maximize the opportunity and trade into it. This is hard to trust at first and takes a lot of effort by you to develop the trust to trade the signal effectively.

We are looking for confluence within the breadth tools that begins to press against a "maximum signal" strength. STRONG signals that are all bearish or all bullish. We do not want to jump because one tool is found to be bullish while the other tools are flat or even maybe bearish.

Market Breadth is not a tool to spot reversals or to confirm a reversal. A market reversal would likely not show up in breadth until long after the reversal happened. This is because the breadth tools are "wide looking" and are not narrowly focused. The index (like $SPY or $QQQ) can flip back the other way and the breadth tools may not even register anything more than a "slowing down" or weakening of the bullish or bearish signal.

Review

When it comes to breadth - we are trying to discover what “most of the market” is doing or we are trying to define what a particular part of the market is doing. This is why it’s important to have agreement in the tools we are using. If we only have a single breadth tool that is bullish or bearish (and the rest are offering noise) then we do not have a strong breadth signal.

Additional Signals

They say "Price is King" - and that is true when looking for additional "signals" in the market. Intermarket Analysis examines the relationships between different asset classes, such as currencies, bonds, commodities, and equities, to identify trends and correlations.

Consider USDJPY and it's relationship with the US-10 Year Yields (the $TNX) ... and the relationship of the TNX with the broader market (like the S&P). Below we have two pictures which highlight this relationship.

U.S. 10YR Yields

Today in the market we had a sudden and explosive move within the $TNX (or the 10-Y futures shown below) which pushed the markets into a swift sell-off. Some of the reasons for that selloff was how fast the $TNX moved higher and the backdrop - "why" the $TNX began running. See the move in the picture below.

Comparison Chart of Orange Line: $DXY | Blue Line: US-10YR

S&P (or the /ES)

Today in the market we had a sudden and explosive move within the $TNX (or the 10-YR futures shown above) which pushed the markets into a swift sell-off. Some of the reasons for that selloff was how fast the $TNX moved higher and the backdrop - "why" the $TNX began running.

Below we have the /ES (E-Mini S&P 500 Futures) falling through the trading day while the TNX rallied like a rocket ship (above). There was conviction to take the short and conviction to hold it through the light pullbacks. This is another form of analysis - "intermarket analysis".

Comparison Chart of Blue Line: USDJPY | Orange Line: S&P-500 ES Futures

Learning about Breadth Tools and Intermarket Analysis is an advanced process that many traders over-look or just ignore because it seems to complicated or complex; I would argue that ANY use of these tactics is better than no attempt at all.

We do not always get clear signal from intermarket analysis or breadth tools; we do not always get clear signals from things like Sector Analysis. But - we want to look anyway because if there IS a clear signal it will be a very obvious one.

At the OEC - we believe that Breadth is important and hopefully after reading this post you also agree it is important. We share insight each trading day - posting charts of the NYSE $TICK, Cumulative $TICK, Adv Dec, Weighted AD, $KRE, and $NYFANG and offering analysis of what those charts are telling us that day.

Breadth