V.7:1 (9-12): Technical Index measures market breadth by William Mason

V.7:1 (9-12): Technical Index measures market breadth by William Mason
Item# \V07\C01\BREADTH.PDF
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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).

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