Joined Oct 26, 2011
153 Blog Posts

Breadth Marches On

One of the interesting I observed about breadth recently is that off of oversold levels the bounce was so strong that it was difficult to distinguish leaders from anything else. “buy everything” was the motto just as on a longer fractal it was off the 2009 lows. Breadth still flipped aggressively and there were still a large percentage of stocks up, as well as a large percentage of big movers up, but it was not a market that you could say was pulled up by leaders, but instead one in which everything rallied, and a small percentage of stocks rallied a lot. That could be interpreted as shorts merely getting squeezed out and an over enthusiastic buy after a sharp sell off before another leg down, or as a sell off that had gotten so far oversold that the opportunity was so good that the buyers didn’t have time to be picky and do thorough research, they wanted in on anything and everything they could. The key to evaluating the breadth sometimes is patience when you are unable to have an edge in putting the breadth into proper context. Coming off oversold is tough.
A breadth flip from bearish breadth to bullish breadth is generally really good off of oversold levels, but the difficult part is assessing if it will be a market of stocks or a stock market and if the move will represent a V reversal or if those lows will be retested? Is it going to run away from here or is it going to retest resistance and remain in a range? Sometimes clarity is not provided until later on.

Fortunately, the last few sessions have seen leadership as markets have gotten more stretched from the lows. We do see more modest breadth overall, but this is clearly not “just noise” as some of the 1% movers may be and not a reactionary rally, but one driven by big movers clearly outnumbering the small moves.

For example today just looking at one day moves, 60% of all stocks moving were up today. Of those that moved 1% or more, 61.2% were up. Of all 4% or more moves, 64% were up. While the extreme moves are more rare, the more extreme the filter got, the more bullish the breadth is as a % of movers of a certain threshold. In a strongly bullish environment, the breadth being even more bullish as the moves become more extreme is typically a good sign. That may signal a number of things such as conviction to the upside, positive earnings and revisions and fundamental factors that drive stocks up, generally positive news as news driven moves may be of greater magnitude, and an increased amount of capital in the system allowing them to chase. All of these are typically bullish except when at overbought extremes in bubble territory and indicative of sentiment being too extreme when 4% movers make up a larger and larger percentage of up moves.

One sign for extreme sentiment might be breadth on a longer term time frame showing extreme up moves composing a higher percentage than strong up moves, and a large overall number. We have not seen that lately, as sentiment is not extreme at all on the longer term. We also have not seen much leadership on the extreme moves at all on longer term basis, which means this is still a swing trading environment, as opposed to the market entering run away trend mode where buy and hold for a run away move is king (I imagine the 80s and 90s showed plenty of leading growth stocks running gap and go or breakout and chase). This action in my view can be confirmed by the Russel still remaining in a consolidation range.

Monday August 11th (possibly the prior Friday) and for sure Wednesday, August 13th saw huge reversals from bearish breadth that continued to stack up over the next couple weeks. Although breadth on the daily move is not above the 80% range as it was a week ago, the fact that there still appears to be greater convictions on the big movers to the upside shows that leaders can continue to pull the market higher. The % of 1% movers moving at least 4% is around 15% so letting your winners run still appears to be a good strategy as well which supports the swing trader’s and stock picker’s cause.

Today here are some signs the bulls are winning aside from up moves outnumbering down moves and the market being up:
% of up stocks moving 4%+

% of down stocks moving >-4%
% of 1%+ stocks moving 4%+

% of -1% stocks moving >-4%
% of up stocks moving 1%+
% of down stocks moving >-1%


breadth tracking

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