Market Breadth
Market breadth measures how many stocks are taking part in a rally or a decline. Common indicators include the advance/decline ratio, the share of stocks trading above their 50-day moving average, and the number of stocks hitting new 52-week highs and lows.
How to read it
An index that rises on poor breadth (only a handful of large caps going up) is rallying on a shaky foundation. A healthy advance is one where the index and breadth strengthen together.
Extreme readings are useful contrarian signals: when the vast majority of stocks have fallen below their 50-day moving average, a short-term bottom is often near.
Common pitfalls
- A cap-weighted index can be carried to new highs by a few giants while most of its constituents are actually falling. Watching only the index will miss this.
On FinDog
"Market Temperature" in the right-hand column of the Daily Wrap combines advancers versus decliners, the share of stocks above their 50-day moving average, and new highs versus new lows into a single 0–100 score. It counts S&P 500 constituents only.
Read today's Daily Wrap →Related terms
- S&P 500The S&P 500 is made up of roughly 500 large U.S.-listed companies, weighted by float-adjusted market cap. It covers about 80% of total U.S. stock market value and is the most widely used gauge of the U.S. large-cap market.
- VIXThe VIX is derived from the prices of S&P 500 index options and reflects how much volatility the market expects over the next 30 days, on an annualized basis. The higher the reading, the more investors are willing to pay for insurance.