A Market Breadth Explosion Like We've Never Seen Before

The market staged another pretty dramatic rally on Friday to start the year. While the price gains were good, the real stunner was in the broad market where advancing issues outnumbered declining issues by a very wide margin. For three straight days, advancing issues on the New York Stock Exchange exceeded 2,500. That’s a breadth explosion like we’ve never seen before. And I have well over 40 years of advance-decline data.

The thing is, back in 1982, there were only about 1,100 stocks listed in total, which means that the 2,500 number may be a bit misleading. So to compare apples to apples, I performed the following calculation. I took the number of advancing issues, and divided that number by the sum of advancing issues and declining issues for every day. For instance, on Friday, there were 2604 advancers and 547 decliners. The sum of those two is 3151. So I divided 2604 by 3151 to get a ratio of 0.8264. That was the third straight day the ratio was greater than 0.80. I then calculated the ratio for every day going back to 1965. There was only one other time where you had this ratio above 0.8 for three straight days, and that was in August 1984.

Click image to enlarge

The chart above shows the S&P 500 in the top window, and the daily ratio in the bottom window. Also in the bottom window is a vertical bar where the ratio exceeded 0.80.

The chart below shows the same information, except the threshold is 0.75 instead of 0.80. Note that you had four prior instances.

Click image to enlarge

The next chart is with the threshold at 0.70.

Click image to enlarge

Now I am not about to hang my hat on any one indicator. But I will say this. Whenever you’ve had a breadth explosion like this before, the market has rallied or held steady. The weakness in this analysis, of course, is that we’re only looking at 40 years of data. That said, this is definitely not bad news.

Comments

[investor88:]

Another piece of good news for the market.

Jan 06 08:50 AM

[optionsgirl:]

Just another rally in bear market. Keep analyzing your data and wait until Obama's been in office 90 days. Then, see where you stand!

Jan 07 11:28 AM

[momomiester:]

LOL you have to put it in context. We are have this broad movement due to a meltdown of the financial system..How many times has that occured in history? Plus a massive liquidation by funds results in covering and bargain hunting off a oversold bottom. They would show breadth too wouldn't it?

Jan 07 03:32 PM

[briacal:]

Things may change tomorrow;for now I like to grab any sign of hope after all the horrible events of the past year

Jan 08 12:23 AM