Bulls vs. Bears: The Market Breadth Score (Article)

Bulls vs. Bears: The Market Breadth Score

By Alexandra Guevara

Summary

Volatile and oscillating markets can often make it difficult to discern broader investor sentiment and market direction.

For active traders, however, volatility is a blessing in disguise, as it provides short-term opportunities for traders who are buying the oversold dips and selling the overbought peaks. To identify these overbought or oversold levels, technicians use a variety of technical or quantitative indicators. In this TradeStation Labs Report, we introduce an indicator that may be used to identify short-term market moves using market breadth.

Figure 1 below is an image of the Market Breadth Score indicator plotted below the S&P 500 Index. When the average Market Breadth Score is increasing or above 0, it indicates a more bullish sentiment in the market. When it is decreasing or below 0, it signifies a bearish sentiment. The higher the score, the stronger the signal for a bullish trend. Conversely, the lower the score, the stronger the signal for a bearish trend.

This article was originally published at TradeStation.com and reproduced with their written consent.