The definition of stock market breadth is the number of stocks participating in an overall stock market index price move, whether the stock price is moving up or down.  Market breadth is useful in determining the strength of a stock market trend.  The theory is that the more stocks participating in stock market trends, the stronger the price trend.  Many analysts have noted that a divergence between the price of stock market indices like the S&P 500, and the breadth of stocks participating in the trend can lead to a price trend reversal.  Using market breadth indicators may give you an edge in stock market timing, giving you an advanced view of when to tighten your trailing stop loss orders.

Market Breadth Indicators

Market breadth indicators come in a variety of forms, and they all have the intent of measuring the underlying stock participation in a rally or sell-off.  Most popular breadth indicators can be roughly divided into three categories:

1) Indicators based on stocks making new highs or new lows

2) Indicators based on stocks above or below a moving average

3) Indicators based on stocks that are advancing or declining in price

There are other market breadth stock market indicators, some, like the McClellan Oscillator, are a combination of those just mentioned, while others are based on an aggregate view of stocks exhibiting a particular technical indicator trait (for example the number of stocks in an index with an RSI value >= 90).

Stock market breadth indicators have been classified as technical analysis of stock market trends, as they do rely on the price action of individual stocks.  They are also sometimes referred to as stock market internal indicators.

Understanding the stock market is all about knowing which side of the trade you should be on (long or short), and this easier when you start with a top down analysis, which should include a study, and ongoing review, of stock market trends and their underlying strength using market breadth as a guide.

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