In the last few months, I have seen many folks who play the big-cap indexes, but not necessarily individual stocks, scoff when I mention breadth.
It doesn't matter, they say. Just look at how great Nasdaq and the S&P have done with poor breadth. They are correct.
But I maintain that breadth is to be thought of as the soldiers on the battlefield and the mega-cap, index-moving stocks should be considered to be the generals. When the generals are in charge, there are a handful of stocks to pile into, and so they tend to go up ridiculous percentage moves each day, leaving everything else in the dust. When the soldiers are leading the charge, there are so many more opportunities to find places to make money.
That means good breadth provides more opportunity. Sure, the down-and-outers might not move 20% or more in a day, they might only move a few percentage points, but there are more of them to pick from. When the number of stocks making new highs is expanding, there is more to choose from. When the number of stocks making new lows is expanding, there are fewer stocks to choose from.
Wednesday saw the soldiers hanging tough and the generals off the field. That's why the indexes were down, but breadth was positive. That's why the indexes were down, but net volume was positive -- heck 70% of the volume on the New York Stock Exchange was on the upside with the S&P down 15 points. Even Nasdaq had positive net volume despite having triple digit losses for the index.
I have spent a great deal of time in the last two months complaining about breadth and noting that the number of stocks making new highs was pathetic and the new lows were rising. The new highs are still pathetic, but new lows began contracting late last week and for the first time on Wednesday we saw the 10-day moving average of Nasdaq's new lows attempt to roll over.
Breadth was positive, enough to get the McClellan Summation Index to stop going down for the first time in a month. Technically, it is the first time since June, but we did have that small blip up in late July to a lower high. In any event, it will take some additional better breadth days to get it to turn up but to halt the decline on a day the major indexes are down is a step in the right direction.
On the sentiment side of things, the Investor's Intelligence bulls came right down to 55% and the bears moved up to 18%. That puts the bulls and bears where they were in early July. So I'd say there really was a sentiment shift last week.
The chatter has turned once again to value over growth. I'll say this: What about terming it differently? What if you ask, "has breadth expanded?"
Then, the answer is, Yes, it expanded two of the three days this week. And to me, better breadth is what we want to see.