Technical Index measures market breadth
by William Mason
There are numerous driving forces in the stock market such as inflation, interest rates, earnings, trade
deficit, fear and greed. The final output from the driving forces behind the stock market are the various
indices such as the NYSE Composite. Dow Jones Industrial Average, S&P 500.
These are fine indices for measuring the market results, but quite removed from the input side of the
equation. Some technicians try to build models around these variables with varying degrees of success.
What I wanted, instead, was the intermediate or transition variables between the input driving forces and
the output monetary indices (Figure 1).
The historical standard that fit my definition was the advance minus decline line. Some technicians keep
track of advancing volume-declining volume and new highs minus new lows, but nowhere could I find an
integration of these variables (which all seem very important to market performance) into an overall
market breadth index.
To fill the void, I created the Technical Index about a year and a half ago and have been using it as a
master market breadth index. Like any index you can perform all the standard technical analysis
techniques on it (stochastics, momentum, oscillators, cash flow, Relative Strength Index).