When considering multi-day and even multi-week swings in the stock market, knowing how to view and interpret breadth information can be incredibly valuable.
Click here to watch a video explaining how to read markets using volume at price.
Below you can see a daily chart of SPX with a 10-day moving average of breadth ($ADD) in the sub-panel.
When considering 10-day average breadth, often times in a correction against an on-going uptrend, you will see the SPX find support and respond back to the upside as the breadth average tests the zero line. Look at all the blue arrows since the lows of early this year.
When the market has been moving higher and the breadth average begins to wane, oftentimes this is a signal of an impending correction (red arrows).
When the market is in a more neutral or even bearish condition, seeing the breadth reach lower levels (sub -500 and near -1000) is where one can anticipate short-term exhaustion and bounce potential (green and black arrows).
Tracking the behavior of breadth using a 10-day moving average and using these metrics as a guideline, you can stay oriented in the right direction while anticipating upcoming swings and market turns.
What are the big green circles you ask? That’s the spot where the 10-day breadth average reached the highest/strongest readings since the powerful rebound off the 2009 lows. So it’s the strongest 10-day breadth average readings in the last 7 years. And that’s bullish and further confirms the uptrend behavior of the SPX and ADD.
