Blog

Market Breadth

“If I could impress on you one fact, it would be that at least 75 percent of the risk in any stock is associated with the market and sector. If the overall market is not supporting higher prices, very few stocks you own, if any, will do well.”
Thomas J. Dorsey – Point and Figure Charting

Being able to identify the four Stages visually on individual stock charts is a crucial skill when using the Stage Analysis method. However, the major stock market index charts, such as the S&P 500, the Dow Jones Industrial Average, and the Nasdaq 100, are all just averages of the stocks within them, and are also distorted by the weighting of stocks.

For example, currently the top 10 stocks in the Nasdaq 100, make up 54% of the weighting. So over half of the Nasdaq 100s price action is determined by just 10% of the stocks. Therefore, you could have a scenario where 90% of stocks in the index are in Stage 4 declines, but the index chart could still look reasonably healthy in Stage 2, as the top 10 stocks are still in Stage 2 advances and holding the index up.

This is where market breadth indicators come into play. As they give you an unbiased look at what’s really going on under the surface of the stock market, and so can help you to determine the actual Stage that the market index is in.

There are many different data sources that you can use to get market breadth information, and each have their own strengths and weaknesses. But in the Stage Analysis method, no market breadth information is used in isolation. Instead, we use what is known as the Weight of Evidence approach, where all of the different market breadth information is combined to determine the overall strategy that should be used, and so can help you to determine whether you should be using a more cautious strategy or a more aggressive one.

Stan Weinstein was famous for using over 50 different indicators to determine the Weight of Evidence. But retail investors shouldn’t be put off, as you can achieve a similar effect by using a much smaller, core set of market breadth indicators, to create your own Weight of Evidence.

Stage Analysis Members Video – 1 September 2024 (46mins)

Stage Analysis members weekend video starting with a discussion of the new User Chartlists feature and how to use it, followed by the US Watchlist Stocks in detail on multiple timeframes, the Significant Weekly Bars, the Sectors and Sub-industries Bell Curves, the key Market Breadth Charts to determine the Weight of Evidence and the Major US Stock Market Indexes Update.
Read More

Stage Analysis Members Video – 25 August 2024 (1hr 3mins)

Stage Analysis members weekend video with a discussion of the Significant Weekly Bars, new features discussion, the Sectors and Sub-industries Bell Curves, the US Watchlist Stocks in detail on multiple timeframes, the key Market Breadth Charts to determine the Weight of Evidence and the Major US Stock Market Indexes Update.
Read More

Stage Analysis Members Video – 18 August 2024 (48mins)

Stage Analysis members weekend video starting with a discussion of the Significant Weekly Bars, the US Watchlist Stocks in detail on multiple timeframes, the Sectors and Sub-industries Bell Curves, the key Market Breadth Charts to determine the Weight of Evidence and the Major US Stock Market Indexes Update.
Read More