Stock Market Breadth Weakening
We often look at “market internals” to gain a better understanding of possible inflection points for equity prices. Market internals include numerous indicators with most being centered around market breadth. Market breadth measures the number of stocks participating in the general market’s trend. Healthy markets have a high percentage of participation; weaker markets have what is known as “narrow breadth”.
The Summation Index, shown below, is an intermediate-term measure of market breadth. A turn down in the Summation Index, all things being equal, increases the odds of a market correction. Markets can advance with a declining Summation Index, but it is a sign of waning participation.
