How To Deal With Bad Breadth
Now more than ever, there is always a lot of mention of “bad breadth.” This is when the indices traded or are holding up a lot better than the majority of individual common stocks.
For example yesterday I tweeted that it was an interesting day, the major indices were up, the small caps barely down but yet we had more declining issues than advancing issues, we had more 1 and 3-month new lows than new highs. We also had more stocks down 4% or more for the day than up 4% or more.
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But yet the indices masked what was happening underneath the surface by closing green for the day. This is going on quite often. Here are my thoughts on it;
- Negative divergences are not a great timing tool, positive divergences are.
- One has to keep an open mind to the fact that the lagging stocks can catch up to the indices and negate the negative divergence.
- More importantly above else, it reiterates why you should own the index ETF’s as core positions, YOU WILL NEVER FEEL LEFT OUT.
Persistent negative breadth will eventually catch up to the indices, however, more often than not you have to give the benefit of the doubt to the bulls.
Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at email@example.com or 646-480-7463.
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