Market Breadth Should Be Ignored Not Justified

Market Breadth Should Be Ignored Not Justified

I’m not sure about the exact time-frame but in 2013-2014 it seemed like every blog post was about “negative divergence”/”bad market breadth”.  Nowadays its just the opposite, it seems like every other financial blog post/tweet is about how market breadth is irrelevant or it doesn’t count because a bulk of the stocks that are down are in the energy, material, and industrial sector.  Do we count as new highs only the biotech stocks that actually make money?

I’m a believer that one should ignore negative divergence in a bull market 99% of the time.  However, it should be ignored not justified.  If you take all the down stocks out of the equation–breadth would be pretty darn good.  If you take out all the bad days from your life you might consider your life perfect.

In 2000 it was all about the clicks, eyeballs, the old brick and mortar stocks were irrelevant, so was Warren Buffet.  Copper at one point was consider a leading indicator, after 2009 the banks were also considered irrelevant when the market started rallying.

Here are some stats about the current market situation;

  • We have 1,449 stocks above $2 down 13% or more in the last 34 days versus 677 that are up 13% or more in the last 34 days, this number includes the stocks that don’t count; energy, material, and industrials.
  • If you take out the stocks that “don’t count” “Los Extraditables” as I call them, then you have 879 stocks above $2 down 13% or more in the last 34 days versus 677 stocks that are up 13% or more in the last 34 days.
  • Now, if you take out the energy, material, and industrial stocks from the stocks that are up 13% or more in the last 34 days then you only have 572 up 13% or more.

If you lengthen the time and percent return to stocks up 25% or more in the last 65 days here is what you get;

  • 776 stocks above $2 are down 25% or more in the quarter versus 478 that are up 25% or more.
  • If you take out “Los Extraditables” (energy/material/industrials) then you have 423 stocks above $2 down 25% or more in the last 65 days versus 421 that are up 25% or more in the last 65 days.

How do you prevent bad breadth, just take out all the down stocks.

Stats courtesy of StockBee

fzorrilla@zorcapital.com   @Zortrades

By |2018-02-02T12:09:44+00:00August 6, 2015 10:33 am|

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