For many it could be obvious but there are some who does not even expect that it is possible to analyze the stocks listed in an index. Breadth analysis is based on the summary analysis of stocks listed in an index in order to define the general tendency among index constituents to assume a possible trend development in an index itself. Logic is simple - index price is calculated from its constituency prices, respectfully, index follows the majority of its constituents. You take a look at the listed stocks trends - you may assume where an index is moving. Explanation to the charts below: Pane #1: index candles Pane #2: Advance decline volume. Green line represent summary volume of the advancing listed in the index stocks and red line represent summary volume of the declining listed in the index stocks Pane #3: Advance decline volume oscillator - represent the difference between advancing and declining volume. It is basically the same as the indicator in the pane #2, just visually easier to see whether bullish (advancing volume) or bearish (declining volume) pressure is dominant Pane #4: Summary volume of the stocks listed in the index with 4-day MA applied to it Pane #5 High and lows - green line represent the number of listed in the index stocks which are hitting their 52-week highs and red line represent the number of the listed in the index stocks crashing their 52-week lows Brief Breadth analysis of the charts below: On the NYSE Composite (^NYA), S&P 500 (^SPX) and Russell 2000 (^RUT) the Bullish pressure (volume of the advancing stocks) remained dominant despite the small correction we had over the past two weeks. On the DJI (^DJI) and Nasdaq 100 (^NDX), volume associated with bearish stocks is stronger. Because of the bullish pressure dominance on the major indexes we may assume that there are good odds we may see the indexes moving back to heir April's highs. The technology sector may remain weak and may keep the indexes from the further advance. The positive sign is that we do not see a big number of stocks making new 52-week lows. We have not seen a lot of then even on the Nasdaq 100 during the recent 6% decline from April's high. There is nothing close to what we had right before decline in August 2015 and right before strong slide in January-February 2016. This also confirm that current small correction on the Nasdaq 100 most likely will not push the market in a deep slide and most likely it will be just a small correction.
Good post. Something I've been looking at learning and trying to utilize. Listened to a podcast on Better Systems Trader with Greg Morris. Was a good listen on the topic. Got me to thinking about how the major indexes are built and weightings. If I remember correctly he mentioned he had switched to Nasdaq for breadth analysis as the NYSE at some point to bring more products to the exchange, started taking REITS and other types of funds/trust that don't really act like business stocks. Like the idea of advanced/decline as is doesn't care about weights or market. Good way to read the entire index and the money flow as midcaps/large caps are all equal.
from my personal experience, Nasdaq 100 is correlated with the market when technology stocks move it. The S&P 500 is better, yet it covers the strongest stocks. Russell 2000 on the other hand covers the small cap stocks. NYSE composite is unique in this case as it covers all industries. The only possible problem I run into is that the Breadth indicators are slow on changes. On the other hand, who cares when you analyze long term. The only an excuse to use Nasdaq 100 in Breadth analysis could be that if you calculate data manually and it is much easier to work with 100 stocks rather then with 500 on SPX or 2000 RUT. I look at all NYA, SPX, RUT and NDX. Sometimes I also look on DJU and DJT. I found that in many times one of the indexes may give you an idea of coming trend changes