For a technician, there are many different signals and indicators to consider when trying to establish a thesis. Patterns and trends are often difficult to see but if we use the right tools then we can flesh out the action and prepare a real time scenario based on highly probable outcomes.
The primary indicators we need are simply price and volume. This is the raw action of a stock price and shows pure supply and demand across every time frame. If you only had price and volume on a chart to use then certain observations and assumptions can be made about the future of stock prices.
However, I look for more data to confirm what I am looking at on a price/volume chart, and breadth is one of the key indicators. Breadth is simply advancers over decliners, but tells us so much about intentions, money flows and trend.
More importantly, breadth gives us a good read on sentiment. When breadth is strong there is heavy money flowing into stocks, and that is the ‘big money’, not the very fast ‘hot money’ which tends to move in/out quickly. Since the big, institutional money is what drives the price action, I want to follow their lead.
Lately, breadth has been strong (since early October), hence the market has moved sharply higher.
Where to find the best breadth data? I will often use the chaikin oscillator and arms index, but other strong tools are on balance volume, force index and cumulative volume index. Coupled with other price readings, breadth will give us a good read on the next probable market move.
