Market Breadth

Market breadth is an analytical technique that measures the internal strength of the market by looking at the participation of all stocks within an index. While indices measure the *price change*, breadth measures the *aggregate behavior* of the components. It separates the "leaders" (the few stocks driving an index) from the "followers" (the broad base of the market).

• Percent Above Moving Average (e.g., % of stocks above 200-day MA): If the index is rising but fewer stocks are above their 200-day moving average, it means the trend is narrowing—a classic sign of an impending market top.
• New Highs vs. New Lows: A healthy bull market should see a consistent expansion in the number of stocks hitting new 52-week highs. When the index makes a high but new highs *don't* expand, the market is running out of gas.
• McClellan Oscillator: A more sophisticated indicator that uses the difference between advancing and declining issues to identify extreme overbought or oversold conditions.

Use breadth to avoid "Fakeouts." If the S&P 500 makes a new high but your breadth metrics are diverging (getting lower), do not chase the breakout. That index high is likely a "bull trap" being fueled by a handful of mega-cap stocks, while the rest of the market is actually deteriorating underneath.