What Is Negative Breadth Telling You

There's been some complaining recently about the breadth of the market.  Quite simply it's been horrible, I saw one tweet that said "I have no idea what is holding up this market". Big caps have been holding up this market.

Based on my stats, breadth peaked on 10/12/2015 which is precisely when the Russell 2000 peaked. Since then the Russell 2000 is slightly negative while the Dow 30, QQQ 100, and the SP500 are positive.

Nine out the last 12 days we have seen more stocks down 4% or more for the day than stocks up 4% or more for the day. (4% stat courtesy of Pradeep Bonde)

Even with the 12% rally of the lows we still have 827 stocks down 25% or more in the last 65 days compared 564 that are up 25% or more.

As far as stocks up 13% or more in the last 34 days versus stocks down 13% in the last 34 days the figures are 1291 to 1093, almost even.

The ten-day moving average of the advance-decline line for the NYSE, NASDAQ, AMEX is also negative with the three major indices printing near highs.

This divergence, for the most part, is due to the small caps underperforming.  Sometimes this divergence will impact the market in a negative way sometimes it won't.

There are two things you should know about negative breadth divergences;

1. They don't work as well or as timely as positive breadth divergences, and this goes for every indicator out there.  
2. You have to keep an open mind that perhaps stocks will catch up to the indices and negate the negative divergences.  

Only time will tell.

Work With Me

Stay Informed