Market Breadth Leans Toward Bearish Camp
The Summation Index is a market breadth indicator that is derived from the number of advancing and declining stocks in a given market. The concept of breadth is easy to understand; healthy markets have broad participation during rallies.
We showed some wedge formations that we were concerned about on May 13. A similar wedge was recently broken in a bearish manner on the chart of the Summation Index (see purple arrow). The indicator at the bottom of the chart is known as ADX. ADX measures the strength of a trend. The green and red lines help identify the direction of the trend. The cross of the red line above the green line (see orange arrow) leans bearish for market breadth, and indirectly bearish for the stock market. The black line (red arrow) shows a “sleepy trend” that may be ready to pick up steam. If the current trend picks up steam, it would lean bearish for stocks.
