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Being a big fan of Boggio's I feel somewhat compelled to answer the call
and contribute to RealTraders something that might be of interest to those
who trade for real.
Something I have followed for over a decade is the relationship between
price and the breadth of the market, i.e., advancing issues minus declining
issues. When price is advancing strongly the net breadth of the market is
positive, conversely when the market is declining the net breadth of the
market is negative. I have found this to be a very valuable momentum
indicator. As is the case with oscillator type indicators, what is most
important in the read of breadth is it's relative position to that of price
in any given swing move. As rallies begin to lose steam, breadth will taper
off and make lower highs relative to the highest price readings made during
that particular swing. As declines are bottoming fewer net declining issues
will correspond with the lower prices. In large bull trends (which we have
experienced for the past several years) a series of divergences will
usually occur prior to any significant break in price. Also in strong bull
trends the extreme absolute readings on sell-offs will quite often mark
significant bottoms without lower price levels on higher breadth readings
to create the classic type divergence.
The behavior of the relationship between price and breadth will most likely
flip-flop when the trend bigger trend changes from bull to bear. Then we
will see large breadth expansions and corresponding strong rallies quickly
retraced and the divergences at price lows take longer to form.
At the present levels we are very close to new highs in the S&P, NYA comp,
and OEX, basically all the major high-cap indices with the exception of the
Dow, which I do feel will catch up before the fattest lady sings on this
market. However, there may well be a chubby lady singing at these levels.
Breadth has been OK and actually picked up a bit today, but I doubt very
seriously we will see new highs unless there is an immediate expansion.
Short term, we are at a make or break level and if breadth does not expand
we could see some fairly vigorous selling. I'll refer to you Boggio's work
for targets.
Attached is a gif showing some of the recent price action with a chart of
the breadth in the lower sub-graph.
One last thing: Do you know the difference between Bill Clinton and the
Titanic? Only 1500 people went down on the Titanic!
Jealously,
Tom
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