Wednesday, July 1, 2015

The Stock Market's Bad Breadth

While we aren't big believers in technical analysis, many of our students are interested in the the topic. So, another technical tool we don't mention in the textbook is market breadth. Breadth is measured by a ratio of stock that are at a 52-week high minus the numbers of stocks. (As with any ratio, the calculation can be different. In this case, another calculation is the number of highs divided by the number of lows.) The idea behind market breadth is that the stock market is stronger when more stocks are increasing in value. A market with bad (low) breadth can be an indication of a weak market. A recent article discusses this point further in that although the stock market is increasing, the market breadth is relatively low, a possible indication of market weakness.