Market Breadth Dashboard

Understanding Market Breadth

What is market breadth and why should I care?

All breadth metrics on this page analyze the ~500 stocks in the S&P 500 index. Market breadth measures the number of stocks participating in a market move. While the S&P 500 index can be heavily influenced by a few large-cap companies (think Apple, Microsoft, Nvidia), breadth reveals whether the overall market is healthy by showing how many of the 500+ stocks are actually advancing or declining.

Think of it this way: if the S&P 500 is up but only 30% of stocks are advancing, that rally is being driven by a small group of leaders. This narrow breadth is a warning sign that the uptrend may not be sustainable. Conversely, when 70%+ of stocks are advancing, the market has broad participation and the trend is more likely to continue.

How do I interpret the advance/decline ratio?

The advance/decline (A/D) ratio shows the number of advancing stocks divided by declining stocks. Here's what different readings mean:

• Above 2:1 - Strong bullish breadth. More than twice as many stocks rising as falling. This confirms rally strength.
• 1:1 to 2:1 - Moderate breadth. The market has a bullish bias but not overwhelming strength.
• Below 1:1 - Bearish breadth. More stocks declining than advancing, even if indexes appear stable.
• Below 0.5:1 - Very weak breadth. More than twice as many stocks falling - potential capitulation or oversold conditions.

Watch for divergences: If the S&P 500 makes new highs but the A/D ratio is declining, it signals that fewer stocks are participating in the rally - a bearish divergence that often precedes corrections.

What does the percentage of stocks above moving averages tell me?

This metric shows trend strength across different timeframes. We track three key moving averages:

• 20-Day MA - Short-term trend (about 1 month). Above 70% indicates strong short-term momentum. Below 30% suggests oversold conditions.
• 50-Day MA - Intermediate trend (2-3 months). This is where most swing traders focus. Above 70% = healthy intermediate uptrend.
• 200-Day MA - Long-term trend (about 1 year). Above 50% defines bull market conditions. Below 50% suggests bear market territory.

The 70/30 rule: When more than 70% of stocks are above their moving averages, the market is overbought but can stay that way during strong trends. Below 30% indicates oversold conditions, but don't try to catch a falling knife - wait for breadth to improve before buying.

How should I use 52-week highs and lows data?

The percentage of stocks near 52-week highs vs lows reveals market leadership and distribution:

Many stocks near 52-week highs (over 10%) indicates strong leadership with stocks breaking out to new highs. This is a bullish signal showing healthy rotation as new leaders emerge. When this percentage drops while indexes rise, it warns of narrowing leadership.

Many stocks near 52-week lows (over 10%) suggests broad weakness and distribution. Even if indexes hold up, this indicates stocks are breaking down beneath the surface - a bearish signal. Sustained high readings can indicate capitulation and potential bottoms.

The high/low ratio above 2:1 is bullish (more stocks leading higher than breaking down). Ratios below 0.5:1 are bearish. Watch for extreme readings on both ends as potential reversal signals.

What is the cumulative advance-decline line telling me?

The cumulative A/D line is a running total of daily net advances minus declines. This is one of the most powerful breadth indicators because it shows the cumulative effect of daily participation over time.

Rising A/D line confirms that more stocks are participating in rallies - a healthy sign. When both the S&P 500 and A/D line are making new highs together, it confirms the uptrend has broad support and is likely to continue.

Declining A/D line while indexes rise is a classic bearish divergence. This happened before major corrections in 2000, 2007, and 2020. It warns that fewer stocks are participating even as the index rises (usually carried by a handful of mega-caps).

Bullish divergence occurs when the A/D line rises while indexes fall. This shows improving breadth beneath the surface and often leads to rallies as breadth confirms a bottom before prices do.

How do I use breadth to time market entries and exits?

Breadth indicators work best when combined with price action. Here are practical trading applications:

Confirming breakouts: When the S&P 500 breaks to new highs, check if the A/D line and percentage of stocks above MAs are also rising. If yes, the breakout has confirmation. If no, be cautious - it may be a false breakout.

Identifying oversold bounces: When less than 30% of stocks are above their 20-day MA, the market is oversold. Wait for breadth to turn up (percentage above MAs rising for 2-3 days) before buying. This increases odds of catching a bounce rather than falling knives.

Warning of trend exhaustion: If the market rallies but breadth deteriorates (A/D line declining, fewer stocks above MAs, fewer new highs), reduce exposure. The trend is losing steam even if prices haven't rolled over yet.

Volume confirmation: Strong breadth accompanied by high volume ratio (2:1 or higher advancing volume vs declining volume) confirms genuine buying pressure. Weak volume with good breadth may be a low-conviction rally.

What are the limitations of breadth indicators?

While powerful, breadth indicators have limitations you should understand:

They don't predict timing: Breadth can stay weak (or strong) for extended periods. Just because breadth is overbought doesn't mean the market will correct immediately. Use breadth to gauge market health, not to time exact entries/exits.

Equal-weight vs market-cap: Breadth treats all S&P 500 stocks equally, but the index is market-cap weighted. A handful of mega-caps can drive the index regardless of breadth. This is why divergences occur - track both.

Market structure changes: The increasing dominance of mega-cap tech stocks means breadth divergences can last longer than historical norms. The "Magnificent 7" can carry the S&P 500 even with weak breadth.

Best used in context: Breadth works best alongside other technical and fundamental analysis. Don't rely on a single breadth indicator - look for confluence across multiple measures and confirm with price action.