Updated on March 20, 2023
In technical analysis, “breadth” refers to the number of stocks that are participating in a market move, either up or down. Breadth indicators are used to assess the underlying health of a market by tracking the number of advancing and declining stocks, new highs and lows, and other metrics that provide insight into market momentum and trend. A market with broad participation, or high breadth, is seen as stronger and more likely to continue its trend, while a market with narrow participation, or low breadth, is seen as a potential warning sign of a trend reversal or market weakness.
What does the breadth of market suggest?
The breadth of the market suggests the overall health and direction of the market. High market breadth, meaning a large number of stocks are rising and a small number are falling, typically indicates a strong and broad-based market rally, suggesting bullish sentiment and a positive outlook for the market. On the other hand, low market breadth, meaning a small number of stocks are rising while many are falling, may indicate a weak and narrow market, possibly signaling bearish sentiment and a negative outlook for the market.
However, it’s important to note that market breadth should be evaluated in the context of other market indicators and used as part of a comprehensive analysis to make investment decisions.