Market Breadth
Quick Definition
A measure of how many stocks are participating in a market move, indicating the health of a trend.
Key Takeaways
- Market breadth measures how many stocks participate in a move—broad is healthy, narrow is fragile.
- Key indicators include the advance-decline line, % above 200-day MA, and new highs vs. new lows.
- Rising prices with narrowing breadth often precedes market corrections.
What Is Market Breadth?
Market breadth measures the degree of participation across stocks in a market move. Strong breadth means a large number of stocks are advancing alongside the index, while weak breadth indicates that gains are concentrated in just a few names. Common breadth indicators include the advance-decline line (cumulative advancing minus declining stocks), the advance-decline ratio, the percentage of stocks above their 200-day moving average, new highs vs. new lows, and the McClellan Oscillator. Breadth is a powerful confirmation tool: when the S&P 500 hits new highs with strong breadth, the rally is considered healthy and sustainable. Conversely, when the index rises but breadth narrows (fewer stocks participating), it signals a potentially fragile market that's being propped up by a small group of mega-cap stocks. This divergence—rising prices with deteriorating breadth—has historically preceded market corrections. The 2023-2024 "Magnificent 7" rally is a classic example of narrow breadth, where seven mega-cap tech stocks drove index gains while the average stock underperformed.
Market Breadth Example
- 1In early 2024, the S&P 500 hit new highs but only 40% of stocks were above their 200-day average—a bearish breadth divergence.
- 2A healthy rally shows 70%+ of stocks advancing: "a rising tide lifts all boats."
Related Terms
Market Index
A statistical measure tracking the performance of a group of stocks representing a market or sector.
Advance-Decline Line
A market breadth indicator that tracks the cumulative difference between the number of advancing and declining stocks each day, measuring the overall health of the market.
Market Rally
A sustained period of rising stock prices, driven by optimism, strong earnings, or favorable economic conditions.
Market Correction
A decline of 10% to 20% from a recent market peak, considered a normal part of market cycles.
Stock
A security representing ownership in a corporation, entitling the holder to a share of profits and voting rights.
Initial Public Offering (IPO)
The first sale of a company's stock to the public, transitioning it from private to publicly traded.
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