Market breadth: Advancing and declining

What are Advancing and Declining metrics?

Advancing and declining metrics are market breadth indicators. They show how many stocks in a group are moving up and how many are moving down. A stock index or a country's stock market can rise or fall because of just a few very large companies. Breadth metrics show whether a move is broad, with most stocks moving together, or narrow, with only a few stocks driving it.

Breadth metrics are calculated for two kinds of stock groups:

• Indices: all constituents of an index, such as the S&P 500 or the Nasdaq 100.
• Countries: all stocks listed in a given country's market.

In the formulas below, constituents means every stock in the selected index or country.

Why they matter to investors?

• They confirm the trend. If an index rises and most of its stocks rise too, the rally is broad and usually more durable. If an index rises while most of its stocks fall, a few heavyweights are carrying it, and the move may be fragile.
• They give early warning signs. Breadth often weakens before the headline index turns. When fewer and fewer stocks take part in a rally, it can signal a coming top. When selling pressure fades across most stocks, that can signal a bottom.
• They reveal conviction. Volume-based breadth shows where the money is actually flowing. A market where most trading volume goes into rising stocks shows stronger buying conviction than one where volume is split evenly.
• They allow comparisons across markets. Because the metrics are counts and percentages, you can compare how healthy different indices or countries are, whatever their size.

Fields and formulas

All metrics are based on each stock's price change (change between the close price of the current bar and the close price of the previous bar).

• If change > 0, the stock is counted as advancing.
• If change ≤ 0, the stock is counted as declining.

Unchanged stocks (change = 0) are included in the declining group. This way, every constituent is always counted in exactly one of the two groups.

The list of metrics:

• Advancing count = number of stocks with change > 0
• Declining count = number of stocks with change ≤ 0
• Net advancers = Advancing count − Declining count
• Advancing/Declining (A/D) ratio = Advancing count / Declining count
• Up volume (%) = (volume of stocks with change > 0 / volume of all constituents) × 100
• Down volume (%) = (volume of stocks with change ≤ 0 / volume of all constituents) × 100