Chapter

22

Market Breadth 

L e a r n i n g OBj eCt i v e s

After studying this chapter, you should be able to:

■ Understand the meaning of market breadth in terms of the broader market action

■ Apply the concepts of market‐breadth analysis to forecast potential tops and bottoms

in the market

■ Identify and differentiate between breadth data and its operations

■ Calculate breadth differences, ratio, and line indicators

■ Understand how to adjust an indicator to account for changing volume of issues at an

exchange

■ Apply technical analysis effectively to breadth‐based charts

M

arket breadth is a critical form of analysis that every practitioner should be fa-

miliar with for reliable forecasting of potential market action. It is the study of

the behavior of the universe of stocks that populate the markets. It concentrates on

the wider market action in contrast to the narrow focus and application of technical

analysis on single stocks alone. Technical analysis on single stocks without regard to

the overall market action or environment is not a particularly effective approach to

reliable forecasting. In this chapter, we will cover various market‐breadth operators,

associated indicators, and their technical interpretation.

22.1 Elements of Broad Market Action

Market breadth is essentially about the study of broad market action, as opposed

to market depth, which focuses on the amount of supply and demand at various

price levels of individual stocks. That is, it focuses on the components of overall

market action rather than on the price action of individual stocks. For example,

market breadth measures the degree of market participation by analyzing the

percentage of issues rising and the amount of volume that accompanies such a