1/24/2013

Watch the breadth

The market has continued to act well. There has been a steady buying pressure and dips intraday have been bought aggressively. So far market has not had any meaningful pullback.


Breadth has seen continuous improvement and is currently reaching extended zones. If you track the Worden T2108 (% of stocks  above 40day moving average), you will see that it has been above 80 for few days. Such high readings do not immediately lead to correction. Many times the readings persist at elevated level for weeks.

At the same time the sentiment indicators are showing extreme readings. If you see the Investors Intelligence survey readings , they are at 53.2% level. Such high redings often indicate excessive bullishness.

But the real sign of trouble would be in the breadth readings. As and when breadth starts to deteriorate , it will tell you the move has ran in to trouble.

5 comments:

Jos Theelen said...

The S&P500 is coming close to the old top in 2007. Does that influence your opinion about the present market?

Pradeep Bonde said...

Not much. I go by breadth more than level.

Jos Theelen said...

When it breaks that top, it breaks a multi year range. Isn't that an important signal?

Pradeep Bonde said...

yes but after that if breadth deteriorates the b/o will fail

Jos Theelen said...

OK, thanks