Breadth indicators really only become useful in two circumstances:
1) when they start to diverge from the price or
2) when they reach an extreme.
The highest percentage of stocks above their 200-day moving average in a decade is noteworthy and can be considered an outlier – or extreme scenario. Stocks and breadth are moving in sync and so there is no divergence.
What does it tell us?
If we think back to what was happening in 2009/10 when this indicator was hitting these levels was that markets were rebounding strongly after the 2008 financial crisis. After the last reading of 83 in MMTH, US stock markets went on to have a 10-year bull market but it had a 20% correction first.
Stock market breadth at this kind of extreme means an underlying strong market that has reached extreme sentiment that could usher in a shorter term pullback. The indicator does not say how big this pullback will be but makes us a little more prepared for it.
1) when they start to diverge from the price or
2) when they reach an extreme.
The highest percentage of stocks above their 200-day moving average in a decade is noteworthy and can be considered an outlier – or extreme scenario. Stocks and breadth are moving in sync and so there is no divergence.
What does it tell us?
If we think back to what was happening in 2009/10 when this indicator was hitting these levels was that markets were rebounding strongly after the 2008 financial crisis. After the last reading of 83 in MMTH, US stock markets went on to have a 10-year bull market but it had a 20% correction first.
Stock market breadth at this kind of extreme means an underlying strong market that has reached extreme sentiment that could usher in a shorter term pullback. The indicator does not say how big this pullback will be but makes us a little more prepared for it.
