What is Market Breadth?
Market breadth is a ratio that compares the total number of rising stocks to the total number of falling stocks.
How Does Market Breadth Work?
Market breadth, or stock-market breadth, is used in technical analysis to gauge the general direction of the stock market based on all traded stocks. Market breadth divides the number of stocks that have experienced gains by the number of stocks that have experienced losses.
A ratio greater than one (Market Breadth > 1) indicates overall stock market gains or a bullish sentiment. By contrast, ratios less than one (Market Breadth < 1) indicate overall losses or a bearish sentiment.
For example, suppose that on a given business day, 1,400 stocks experience gains and 1,200 stocks experience losses. The market breadth for that day would be expressed as follows:
With a market breadth of 1.166, the stock market would be said to have experienced overall gains.
Why Does Market Breadth Matter?
Many believe that market breath presents a more holistic performance measure because it accounts for movements across all stocks; whereas, indices such as the Dow Jones Industrial Average (DJIA) reflect the performance of only a select group of stocks.
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