The moment of truth has arrived for long-term breadth indicators. In the wake of the coronavirus pandemic, these indicators have been highly watched and analyzed in order to better understand where markets are heading.
Long-term breadth indicators are unique in that they allow investors to take a step back from the fast-paced markets and look at the more broad picture. These indicators are used to analyze the overall health of the market and assess the potential of a prolonged bull or bear market.
The latest long-term breadth indictors include the S&P 500 High Low Ratio, the NYSENew High Low Ratio, the Advance Decline Ratio, the Arms Index and the Bullish Percent Indices. Each of these indicators are used to help identify market preferences and determine if the overall market sentiment is bullish or bearish.
The S&P 500 High Low Ratio is one of the most widely used long-term breadth indicators. This indicator is calculated by taking the total number of stocks that finished the trading day higher than the previous day, divide it by the total number of stocks that finished the trading day lower than the previous day. According to the latest data, as of April 19th, 2020, this ratio was 0.99 indicating a very close balance between the number of stocks that closed higher or lower than the previous day.
The NYSE New High Low Ratio is another widely used indicator, used to measure the number of new high-made vs. the number of new lows-made. The data as of April 19th indicates that the ratio was 1.15. This is an important signal given that the ratio hit its highest level since October of 2018.
The third indicator on the list is the Advance Decline Ratio, which aims to measure the number of advancing stocks vs. declining stocks. This ratio is calculated by taking the total number of advancing stocks and dividing it by the total number of declining stocks. The data as of April 19th, 2020, indicates a ratio of 0.87 indicating a slightly bearish tone.
The fourth indicator under our analysis is the Arms Index, otherwise known as the TRIN. This indicator is used to measure the level of overvaluation or undervaluation of the market. The Arms Index, as of April 19th, 2020, was 0.64 indicating an overbought sentiment in the market.
Finally, the Bullish Percent Index is a market breadth indicator that is calculated by taking the total number of stocks with bullish technical signals and dividing it by the total number of stocks in the market. This indicator as of April 19th was 85.2, its highest level since April of 2014.
Overall, long-term breadth indicators are sending mixed signals at the moment of truth. While some indicators are suggesting a bullish tone in the markets, other are saying that the market is overbought and could easily turn bearish. It will be Interesting to see what these long-term breadth indicators say in the coming months.