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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.

IBD Industry Groups Bell Curve – Bullish Percent

The IBD Industry Groups Bell Curve – Bullish Percent further improved over the last week, moving further into the Stage 1 zone (40% to 60% range), with an additional +10.5% of groups moving out of the Stage 4 zone (below 40%), and an additional +8% of groups moving into the Stage 2 zone (above 60%)...
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IBD Industry Groups Bell Curve – Bullish Percent

The IBD Industry Groups Bell Curve – Bullish Percent continued to improve with more groups leaving the Stage 4 zone and shifting to the Stage 1 zone, as well as an additional 5.5% of groups moving into the Stage 2 zone. The average distribution stands at 44.06%, and so the improvements have moved it out from the Stage 4 zone and back into the Stage 1 zone (between 40% and 60%).
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Stage Analysis Members Midweek Video – 27 July 2022 (1hr)

This weeks Stage Analysis Members midweek video starts with a review of the price and volume action in the major indexes, and some short term Market breadth indicators, such as the Nasdaq Composite Bullish Percent Index, which had a Bull Confirmed P&F status change today and the Percentage of Stocks above their 20 day EMAs.
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Stage Analysis Members Weekend Video – 24 July 2022 (1hr 17mins)

The Stage Analysis members weekend video starts this week with a focus on the Semiconductors group, as around 1/4 of the group are reporting earnings in the coming week, and have shown strong relative strength since the start of the month, rising back up the relative strength rankings and and industry group bell curve.
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IBD Industry Groups Bell Curve – Bullish Percent

The IBD Industry Groups Bell Curve – Bullish Percent made as strong improvement over the last week with a +12.98% move into the high 30s, with more groups leaving the Stage 4 zone, and reentering previous Stage 3 ranges, and hence potentially shifting back towards Stage 1.
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Stock Market Update and US Stocks Watchlist – 21 July 2022

The S&P 500 continued higher for a third day in a row with a shakeout in the first hour before turning higher again. It closed above the +1x ATR level and has put in a higher high and higher low within the small rising channel / flag pattern of which it's approaching the upper end of.
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