Novice Traders' Notebook  |  FEB 2001

Market Breadth: Volume by Dennis D. Peterson

Determining Market Health Market Breadth: Volume Of all the market breadth measures to determine the overall health of the market, volume is perhaps one of the most difficult to use. by Dennis D. Peterson It only takes a few stocks to push major indices such as the Dow Jones Industrial Average, the Standard & Poor’s 500, and the Nasdaq Composite up, and that’s especially true for the Nasdaq Composite, which is weighted by market capitalization. To gain insight into market momentum, traders turn to market breadth indicators. Breadth measures how much of the market is participating in an index’s movement. When the breadth is wide, the majority of stocks are participating. When the breadth is narrow, only a few stocks are rising or falling. Up and down volume play a central role in market breadth because they measure how bullish or bearish investors are. There are two aspects of volume that are most important: The first is the total amount of volume and the second is the amount of up volume versus down volume.

by Dennis D. Peterson