Market Breadth: Advance-Decline, Percent Above the 200-Day and Why It Matters

What breadth asks

An index is a weighted average, and a cap-weighted index can rise on the strength of a few large companies while most of its members fall. Breadth asks how many stocks are taking part in a move. A rally in which most stocks rise is broad and tends to persist; a rally carried by a handful of the largest names is narrow and has historically been more fragile, though it can run for a long time before it breaks.

The measures

The advance-decline line is the oldest. Each day, the number of stocks that fell is subtracted from the number that rose, and the result is added to a running total. The line's level means nothing; its direction, and how it compares with the index, is the reading. An index at a new high with an advance-decline line that has not made one says the advance has narrowed.

The percentage of stocks above their 200-day moving average is the most used single measure, because it describes the trend of each member on the same terms. Above 80% is a broad uptrend, and also a market in which most stocks are already extended; below 20% is a washed-out market, which is where major lows have tended to form. The same measure over the 50-day average moves faster and suits shorter horizons.

New highs and new lows count the stocks making 52-week highs or lows each day. A market making index highs while the count of new lows expands is a classic warning; the ratio of highs to lows, smoothed, is a measure in its own right.

The McClellan oscillator is the difference between a 19-day and a 39-day exponential average of net advances, a momentum reading on breadth itself, and its cumulative version, the summation index, is read like the advance-decline line.

The equal-weight index against the cap-weight index is the simplest check of all. When the equal-weight S&P 500 lags the cap-weight version, the largest names are carrying the index; when it leads, the average stock is doing better than the index suggests.

Breadth thrusts

A breadth thrust is a burst of participation after a decline, and the rarest and most studied is Martin Zweig's: the ten-day average of advances divided by advances plus declines rising from below 40% to above 61.5% within ten trading days. It has occurred a few dozen times since the 1940s and has been followed by higher prices a year later in nearly every case. Thrusts mark the start of advances because they show the whole market being bought at once, which is not what a bear-market rally looks like.

Divergences

Breadth divergence is the index making a new high while fewer stocks confirm it: a lower share above the 200-day, a lagging advance-decline line, an equal-weight index that has stalled. It says the advance has narrowed to the largest names and that the average stock has already turned. The warning is real and it is also slow. The rally that began in late 2022 was led by seven technology companies for most of 2023 with breadth divergences in place for months, and it did not end; breadth eventually broadened instead. Divergence is a reason to tighten risk, not a signal to sell an index.

On the desk

The insights page reads breadth for the S&P 500 alongside the cross-asset regime and sector rotation. The heatmap's header gives the cap-weighted move and the share of constituents up on the day in one line, and the EMA S&P 500 boards list every member by sector against its 50 and 200 EMAs on the four-hour and daily charts, which is breadth at the level of individual names.