A Handbook of Technical Analysis: The Practitioner's Comprehensive Guide to Technical Analysis

CHAPTER 22

Market Breadth

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

• Understand the meaning of market breadth in terms of the broader market action
• Apply the concepts of market-breadth analysis to forecast potential tops and bottoms in the market
• Identify and differentiate between breadth data and its operations
• Calculate breadth differences, ratio, and line indicators
• Understand how to adjust an indicator to account for changing volume of issues at an exchange
• Apply technical analysis effectively to breadth-based charts

Market breadth is a critical form of analysis that every practitioner should be familiar with for reliable forecasting of potential market action. It is the study of the behavior of the universe of stocks that populate the markets. It concentrates on the wider market action in contrast to the narrow focus and application of technical analysis on single stocks alone. Technical analysis on single stocks without regard to the overall market action or environment is not a particularly effective approach to reliable forecasting. In this chapter, we shall cover various market-breadth operators, associated indicators, and their technical interpretation.

22.1 ELEMENTS OF BROAD MARKET ACTION

Market breadth is essentially about the study of broad market action, as opposed to market depth, which focuses on the amount of supply and demand at various price levels of individual stocks. That is, it focuses on the components of overall market ...