Two Measures of Breadth That Say Don’t Fight The Trend

The stock market continues to rally.

Just today the Russell 2000 $IWM made new intraday all time highs.

iwm_12_6

So as we march higher, lets take a look at some of our favorite market breadth indicators for confirmation in this move.

Below this chart of the S&P500 $SPY I have displayed NYSE New Highs / New Lows and cumulative Advance decline line indicators.

breadth_12_6

If you’re not familiar with these indicators, here’s what they measure:

$NYHL is a market breadth indicator that is calculated at the end of each day by taking the number of stocks making New 52-week Highs on the NYSE and subtracting the number of stocks making New 52-week Lows.

$NYAD is a market breadth indicator that plots the cumulative net advance decline line. It rises when Net Advances is positive and falls when Net Advances is negative. 

Basically, we want to see these indicators in agreement and rising along side price, and in both cases, we’re seeing exactly that.

In fact, we’re actually seeing them lead the S&P500 as both $NYHL saw an expansion higher this week and the cumulative AD line broke above the November highs before the S&P500 has.

This doesn’t mean things can’t begin to reverse tomorrow, but until we see signs in either A) price or B) breadth deteriorate, it’s probably not going to pay to fight the trend.

Thanks for reading, and good luck out there.

If you need help navigating these markets or finding trades, learn  how we can help (we’re still offering a year of trades for about a dollar an alert).

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Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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