Absolute Breadth Index

Absolute Breadth Index

The Absolute Breadth Index is a modestly effective measure of stock price movement, regardless of direction, up or down. The Absolute Breadth Index uses daily New York Stock Exchange data. Weekly data, available in weekend news sources, such as Barron’s, might also be employed.

The Absolute Breadth Index is the absolute value of the number of advancing issues minus the number of declining issues. To make the data comparable over time, absolute difference must be divided by total issues traded. There was a 1080% increase in the number of stocks listed on the NYSE over 59 years, from a low of 303 total issues traded on 8/24/40 to a high of 3574 on 11/30/99. Such growth could distort the meaning of a breadth indicator over time, unless the technical analyst normalized the data. We can convert the data to a percentage by dividing the absolute value of the number of net changed issues traded by the total number of issues traded, which is the sum of the number of stocks ending the day higher, lower, and unchanged on any given day.

The calculation may be expressed mathematically as follows:

N = ((l A – D l)/(A + D + U)) * 100

where

N: today’s 1-day ratio of the absolute value of net changed issues traded to total issues traded
A: number of advancing issues
D: number of declining issues
U: number of unchanged issues
A + D + U: total number of issues traded each day
* 100: multiply by one hundred to convert a fractional ratio into a percentage

Source: Colby, Robert. The Encyclopedia of Technical Market Indicators; (c) 2003.

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