Suddenly Breadth is Getting Better

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Technical analysts often use “breadth” to determine the market’s internal strength. Simply put, it’s considered bullish when a greater number of companies is rising. And, it’s potentially negative when only a narrow subset of stocks lifts the indexes while others languish.

Breadth has been bearish for most of the last year, with high-profile technology stocks rallying as while most materials, energies, consumer staples and utilities lagged. However recent weeks have seen a potential shift in this trend as new areas come to life. Consider a few factoids from the TradeStation platform.

First, I fired up the ever-useful RadarScreen® and added a few simple indicators calculating changes over different time frames. Then I clicked on “Data” to import the contents of the S&P 500. I also added “Reference rows” (Settings → Page) to help rank my results. Here’s what I found:

  • In the last week, 347 members of the S&P 500 are outperforming the broader index.
  • In the last month, 275 constituents have risen more than the benchmark.
  • Since the year began, only 229 stocks in the index did better than the group.
  • Over the last 12 months, things were similarly mediocre, with only 237 names outperforming.

In other words, more companies are starting to do well over the more recent periods.

It’s also interesting that this shift occurs at the same time former technology leaders begin to slow. Just look at the woes of Facebook (FB), Oracle (ORCL), Alphabet (GOOGL) and Apple (AAPL) this week — all down more than twice the overall S&P 500.

So, where’s the money going? Some other powerful tools on TradeStation might help us answer that question.

This time, I loaded three pre-calculated indexes into a chart. They show the percentage of companies in three major broad-market indexes trading above their 50-day moving averages — a common measure of strength. Here are the symbols and results:

  • $%50DMAASP: In the S&P 500, 41 percent of stocks were over their 50-day moving averages.
  • $%50DMAARL: In the Russell 2000, it’s risen to 54 percent over their 50-day moving averages.
  • $50DMAAND: In the Nasdaq-100, it’s dropped to 45 percent of companies over their 50-day moving averages.
Index members over 50-day MA
% of companies in key indexes trading over 50-day moving averages.

The results show improving trends for members of the small-cap Russell 2000, and worsening results for the tech-heavy Nasdaq-100. This potentially fits with patterns recently emerging in transports and energy.

In summary, no indicator tells you everything. But breadth is a popular concept and TradeStation has many tools that can help. And at present, it may suggest leadership is shifting toward new parts of the market.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.