Understanding Market Themes From Sector Breadth
For years, I have kept breadth data on the overall stock market, tracking shares making fresh highs and lows over various periods and the percentages of stocks trading above their short, medium, and longer-term moving averages. What I've found is that shifts in breadth often precede shifts in overall market direction. This is because certain parts of the market will break down or rebound ahead of the market averages. Conversely, during trending moves, we will see the great majority of shares participate in market rises or declines. The breadth extremes are an excellent alert for overall market momentum. This is a good example of how trading psychology is about the market's psychology, not just about our personal emotions and behaviors . Breadth data are helpful in tracking changes in the sentiment of market participants. Recently, I have built out spreadsheets that track breadth on a sector by sector basis, as well as breadth for various ...