Learn · Breadth
Market breadth, explained
An index is an average weighted by size. A handful of large companies can carry it up while most stocks fall. Breadth is how you find out.
What breadth measures
Breadth counts stocks instead of weighing them. It asks how many are taking part in a move, whatever their size.
When the index and breadth agree, the move is broad. When the index rises while fewer and fewer stocks rise with it, the move is narrow, resting on a few names.
The main gauges
- Advances and declines. How many stocks closed higher and how many lower today. Their ratio is the advance-decline ratio.
- Stocks above their 50-day average. The share of stocks trading above their own average price of the last ten weeks: how many are in a medium-term uptrend.
- Stocks above their 200-day average. The same over the past year: the slow gauge of a market's health.
- New 52-week highs and lows. How many stocks touched their highest or lowest price in a year.
All four are on market breadth today.
Washouts and thrusts
A washout is a very low reading: for instance, fewer than one stock in four above its 50-day average. It shows a market that has been sold almost across the board.
A breadth thrust is the reverse in motion: a sudden swing from very few stocks rising to very many, inside a couple of weeks. It is rare, and marks the moment buying turns broad.
Both are widely described as signals. Whether they have worked on Indian stocks is a question of counting past cases, and of how few of them there have been.
Two cautions
Survivorship. A breadth history built on today's index members leaves out the companies that fell out of the index, which were mostly the weak ones. It makes the past look healthier than it was. Schema says so on its breadth page.
Averages are not timing tools. Breadth can stay weak for months in a falling market, and strong for months in a rising one.
Questions people ask
What is the advance-decline ratio?
The number of stocks that rose divided by the number that fell on a day. Above 1, more stocks rose than fell.
What does percent of stocks above the 200 DMA mean?
The share of stocks trading above their average closing price of the last 200 trading days. It shows how many stocks are in a long-term uptrend.
What is a breadth thrust?
A rapid move from very weak to very strong breadth within about ten trading days. It is uncommon and marks a sudden broadening of buying.
Is market breadth a leading indicator?
It sometimes weakens before an index does, because large stocks can hold the index up. It is not reliable enough to be used alone.
Keep reading
Research and information, not investment advice. Historical patterns describe the past and do not promise returns.