Market Breadth: Deep Dive Behind Price Hype

With the latest price action, this continues being the most discussed topic in trading.

The Bull still has bad breadth

While stock indexes like the S&P 500 grab the headlines, a crucial piece of the market puzzle often goes unnoticed: market breadth.

Market breadth goes deeper than simply whether the index is up or down. It tells us the story of participation - how many individual stocks are contributing to the overall market movement. A strong rally with narrow breadth, for instance, might suggest limited sustainability. Conversely, broad participation across various sectors can indicate a healthier market trend.

This concept deserves a closer look, similar to my previous dives into price action, oscillators, and support/resistance levels.

In this second installment of Market Breadth you will see two more references of indicators applied to different indexes.

To catch up with with this topic and reading the edition from last week, use the following link or go to the Level Up Your Trading Section in the home page of Smartreversals.substack.com

https://smartreversals.substack.com/p/market-breadth-beyond-the-price-hype

Last week we study the McClellan Volume Summation, and other two breadth indicators with clear examples.

4. McClellan Oscillator:

The McClellan Oscillator can be a helpful tool for identifying potential turning points in the market. It analyzes the difference between the number of advancing and declining stocks on an index. A higher number of advancing stocks suggests broader participation and potentially stronger buying pressure. Conversely, a higher number of declining stocks indicates weaker breadth.

The oscillator uses exponential moving averages to smooth out the data and identify trends in the difference between advancing and declining stocks. This helps assess the momentum behind the market movement.

Here's a breakdown of how to trade with the McClellan Oscillator:

Interpreting the Oscillator: