Market Breadth is a portfolio analysis tool provided by Alpha builder that helps in determining the direction of the overall market. It involves analysing the percentage of instruments across the market that are bullish or trending up.
High or increasing market breadth are typically less volatile markets and therefore considered safer for investment. Low and falling market breadth is more choppy or volatile and investors can expect more risk of loss during such times.
The Market Breadth plot provides valuable insights for making investment decisions. It can help identify the right time to allocate to stocks, the ideal leverage using futures and options strategies, when to hedge a portfolio, and the extent of hedging required.
Market Breadth levels can also be used as an buy-low-sell-high investment strategy. For example, market breadth below 20% can be considered oversold and therefore a good time to buy at lows while above 80% can be considered overbought and a good time to book profits.
While the default symbol for comparison in the Market Breadth chart is S&P-500, any other symbol can also be used to check if it’s performance is correlating with the overall market.
Market Breadth in comparison to S&P-500:
In the above chart, you will note that Market Breadth (histogram) started trending down in the last week of January 2020 and started trending up in the last week of March 2020, while S&P-500 (line chart) did not fall until mid-February 2020. This shows how market breadth can be used as a leading indicator for the benchmark S&P-500 Index.
In short, the ‘Market Breadth plot‘ helps you understand what percentage of instruments across the market are trending up. This information is extremely helpful in investing at a macro level in helping determine the overall investment strategy.
Follow these easy steps to use Alpha Builder’s tool “Market Breadth” to see the instruments across the market that are moving up:
1. On the home-page, click “Alpha Builder” or select sub-menu item “ALPHA BUILDER” under the “TOOLS” head of the “PRODUCTS” menu.
2. Scroll down the page and click on “Market Breadth“.
3. The “Market Breadth” chart will be displayed.
4. Click and hold the white button at the bottom right corner of the chart and drag towards left to see the “Market Breadth” at different dates.
5. Type the required symbol in the text-box at the right top corner of the chart and click on the hand lens icon.
6. Follow step-3.