Bad Breadth

That's not breath, it's breaDth. A market's breadth is kind of like a doctor's physical, they look at a bunch of different things, listen to your lungs, heart, maybe run some blood tests and look for anything out of the norm.

Market breadth is a innumerable series of market indicators, many you can construct yourself, most of our leading indicators have some connection to breadth in an off-hand manner, but even after more than a decade, Worden's T2 series show just how in tune Don Worden was with the market, understanding way back when what was important and what breadth indicators have stood the test of time in a changing market.

I make a habit of going through these once every couple of weeks and I have noticed somethings, but they weren't screaming or jumping off the charts, I post them now because they are starting to do that.

So here are a few of the T2 series Breadth indicators raising some red flags.

*The T2 indicator will always be in green, the comparison symbol, the S&P 500 will always be red, the idea in an uptrend is that the indicators either should keep up with the price trend or even lead it, not fall behind.*

McClellan Oscillator Although there are many different ways to use this indicator, I have found over the years the most effective is as a simple divergence indicator.

 The MCO has shown by positive divergence the two most important bottoms I can recall over the last year and a half, the October lows of 2011 and the June lows of 2012 (white arrows), it also shows the May1 top that we built our short positions in front of during March/April, then the Sept/Oct QE3 top and now another negative divergence at this latest move.

Zweig Breadth Thrust-Again, many different ways to use this, some complicated, but the easiest and most efficient is the divergence method.

 The Sept/October top called, everywhere there's a green arrow the indicator is in line with price action, we have another negative divergence currently.

% of all stocks Above their 40-day moving average- This is a broad measure of the market.

 Since this year's rally, especially as volatility was introduced, the percentage went from 85% of all stocks were above their 40 day moving average to 74% as the SPX is at a higher high.

% of Stocks 1 Standard Deviation above their 40-day moving average-These are more momentum stocks.

 We have seen this number plunge from 71% to 52% as the SPX moved higher and through the increased volatility.

Most importantly though...

% of Stocks 2 Standard Deviations above their 40-day moving average-These are the momentum stocks that make a market rally notable, the ones you hear about in the news t the end of the day.

The percentage went from nearly 44% all the way down to a current 12% as the SPX moved higher, meaning more and more stocks have lost momentum and have fell below these averages or SD's of them