Chapter 15
Conducting Breadth Analysis
IN THIS CHAPTER
Identifying bullish percent indexes
Finding the percentage of stocks above 200 DMA
Interpreting different index levels
The term breadth is used to describe how many stocks are involved in a bull market. Bull markets are the strongest when lots of sectors and stocks are trending higher together. To help understand how strong a bull market is, you can use breadth indicators.
When breadth charts are showing lots of breadth, the likelihood of an immediate long-term plunge in the market is low. While it’s still possible for a significant market decline to occur suddenly (such as after 9/11), the major breakdowns in the markets of 2000 and 2008 had all the classic signs of trouble. They were not random or out of the blue. The classic signals of markets under stress were in place before the markets crumbled.
Rather than focusing on the news events to taint your perceptions of the market, you want to use the price action of investors toward stocks. If they are buying almost every sector of the market and lots of the stocks are doing well, you are in a big bull market. When fewer stocks are leading the charge, it becomes concerning, ...
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