Internal Breadth

I heard from some member emails that breadth was being discussed today on the StockTwits stream, later I saw it being discussed on Briefing.com, of course they were talking about today specifically, but I thought we'd take a look at a few breadth charts of a longer nature.

First though, today's volume and advancing / declining stocks:


We saw mixed avg. volume: (NYSE 853 mln, vs. 790 mln avg; Nasdaq 1620 mln, vs. 1724 mln avg) with decliners outpacing advancers on both the NYSE and NASDAQ Composite by a pretty wide margin nearly 2:1 on the NASDAQ and nearly 3:1 on the NYSE: (NYSE 775/2258 Nasdaq 801/1751). The Advancing/Declining issues were largely what the talk about breadth was about today.


There was no consistent Dominant Price/Volume relationship, the Dow, and NASDAQ 100 had a co-dominance of Price Down/ Volume Down and the SPX and Russell 2000 were both dominant Price Down/Volume Down.

Breadth charts...

 The indicator is green, the comparison is the SP-500 in red. This is the percentage of stocks trading 1 standard deviation above their 40 day moving average, these are the bulk of stocks in an advance. From February until today, there's been a 38% point drop in the number of stocks 1 channel above their 40 m.a. from 78% of all NYSE stocks to 40%.

 In an advance there are few stocks that trade 1 standard deviation below their 40 day moving average, recently that number has increased from 6% to 21%.

 The percentage of stocks trading 2 standard deviations above their 40 day moving average (these are the stronger stocks) has recently dropped 35% points from 50+% to just over 15%.

 This is a simple % of stocks above their 40 day moving average (no standard deviations) which was recently near 88% with a recent 24% point drop to 63%, a small shift here can be important, there was only a 10% shift that marked the October low and strong rally from that low.

 This is the McClellan Oscillator, different people use it different way, it can be used as an overbought/oversold indicator, some people use crosses above/below the zero line as signals, but it seems to work best as a divergence indicator, note the divergence between June and July of 2011, leading to an 18% drop in the market, or the divergence between August and October leading to a strong rally, recently it has fallen off quite a bit as well as crossing below zero.

The Zweig Breadth Thrust, there are several ways to use this as well, but it works well as a divergence indicator as most indicators do (like MACD, RSI, Relative Strength, ROC, etc.). Again, note the same divergences seen in the MCO above.

Earlier I showed a current version of this indicator based on price advance only, unlike MACD which uses moving averages which cause some data loss. This is the prop. indicator at the June/July 2011 period applied to the NASDAQ 100, you can see an obvious loss of momentum before the market drop.

 Here's the same indicator now and around the same levels as the last serious decline which started when the 5% gainers were around 20% (dark blue) although that was a different situation in which momentum was being compared at two relatively equal price levels, not during an advance.

 This is the divergence in the NASDAQ Composite (all NASDA stocks) advance/decline line. Note where the indicator (green) is now, below the August 2010 lows when the NASDAQ Composite was about 30% lower.

Finally the McClellan Summation Index, this is often used as a trend following indicator (green) vs the SPY (red). Traders apply a 10 (white) and 20 (blu) day moving average to the indicator to follow trends. In Green you have a buy crossover and in red a sell crossover. It will not get you in a new trend at the bottom, but most trend followers seek to avoid the volatility of bottoms and tops and look for the meat in the middle.

In any case, here's hard evidence of stocks selling off, losing momentum and showing poor recent relative performance. Earlier today I posted the weighting schedule of the Dow-30, approximately the top 10 stocks account for about 50% of the weight. The NASDAQ is even worse, although it has recently been re-wieghted and they charge $10,000 for their proprietary weighting schedule, before the last re-weight, AAPL accounted for approximately 20% of the NASDAQ 100, which at the time was the same as the bottom 50 stocks combined, so you can see how the market can be artificially propped up for a while by bidding up heavily weighted stocks, but when a serious change in the percentage of stocks in the market goes south, even weighting tricks have a half life.