The basic premise of breadth is that an advancing market should see advancing breadth indications, for example the number of stocks making new highs with a market that is making new highs should rise proportionally. The percentage of stocks trading above their 40-day or 200-day moving averages should rise (in terms of percentage of the market or all NYSE stocks). The Advance/Decline line should advance on market advances, it's pretty simple.
Volume Analysis which is a lost art thanks to the F_E_D's balance sheet expansion over the last 5+ years, is making a comeback now that there's less and less F_E_D "accommodative policy" or interference in the market. This is much more an art and a lost one even when it was important and in effect, people tend to look for the Holy Grail of indicators or trading systems and they don't put in the hard work. I think that has always been the attraction of technical analysis, the ease of many of the concepts and as a result people get complacent, they don't recognize the changes in the market and don't adapt. For instance, take volume analysis which is becoming more and more important. The basic assumption there is an advancing market should see advancing volume which has not been the case for this market since the lows were put in at 2009. We'll save this for another day.
For now...There has been a trend of deterioration underway for some time, but it accelerated off the charts in September of last year. I find it ironic though because these indications were in place long before the tinfoil hat conspiracy theory crowd blamed it all on Bullard. It is exceptionally interesting that these signals were in place before Bullard's comments that are credited with the decline off the September highs and the advance off the October lows. When viewed in the light of breadth indicators that are hard numbers, you can't help but feel that the conspiracy crowd got it all wrong in thinking that Bullard's comments on those specific days drove the market lower and drove the market higher.
Just as we had 3C signals in advance, one telling us to expect a Rounding top with a head fake move that would lead to a sharp decline (Igloo with Chimney price pattern) in September and positive divergences several days in advance of the October lows that was posted at the time as a divergence that would produce a "Face ripping rally"; so too did breadth indicators show something in advance.
The point being, perhaps the conspiracy theory crowd doesn't truly understand just how deep the leaks run.
Although the 2015 breadth readings are bad, it's interesting how close they are to the 3C chart above during the same time period.
*The breadth indicators are in green and the comparison symbol is the SPX in red unless otherwise noted*
Going in to September this percentage had fallen to about 55%, by the time we hit the rally/September highs and a false breakout above the rounding top which failed as a head fake move, the percentage of stocks at that new high was around 25%.
Going in to 2015 the percentage was about half of all NYSE stocks, that has consistently dropped and now sits (as of today's close) at a mere 33%, less than half the norm of 2009-2013 while the market is just off all time highs.
As a quick aside, many of you know I taught Technical Analysis for the Public School system's Adult Education Program funded by the state. When it came time to teach Dow Theory which can be very complicated to neophytes in trading, I found that a decent representation that was more often right than wrong was if a stock was trading above its 50-day it was generally in at least an Intermediate uptrend. If a stock was above its 200-day and the average was pointing up, the stock was in a Primary uptrend or bull market. If it was below the 200-day and the average was pointing down, it was usually in a Primary downtrend also known as a bear market.
If you look at this as a market of stocks rather than a stock market and throw out the weighting schemes that gave AAPL about 20% of the weight of the NASDAQ 100 while the bottom 50 NASDAQ stocks combined had the same weight as AAPL alone, I don't see how you can escape the conclusion that we are essentially already in a bear market.
The norm for this breadth indicator ran around 65%, but at last September it fell from approx 58% to approx 47% at the September high. This indication hasn't crossed above +39% all year and currently sits just under 34%.
The indicator has fallen all year and currently sits around the same level as it did at the September highs when it reached a low of only 10%, we are just off that at 12% in a higher market.
Looking at the same indicator now...
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