V.11:7 (298-305): Internal Market Momentum by Martin J. Pring

V.11:7 (298-305): Internal Market Momentum by Martin J. Pring
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Internal Market Momentum by Martin J. Pring

Breadth momentum analysis takes momentum analysis, traditionally gleaned from price and volume, a step further by examining a particular market in closer detail. Market analyst Martin Pring delves into three categories of breadth momentum indicators in this excerpt from his new book, Martin Pring on Market Momentum.

Typical momentum indicators are constructed from price or volume data related to a specific security. However, a market comprises an aggregate measure of a number of different components. A stock market, for instance, consists of a universe of stocks. Similarly, a commodity index is calculated from the prices of a number of different commodities.

In such cases, it is possible to extend analysis of momentum indicators by studying some or all of the components within a particular momentum format. This concept is known as breadth momentum analysis because it measures a broad spectrum of the components of the specific market under consideration. In some ways breadth momentum is far more revealing than price momentum because the index, or price, may be unduly influenced by a few highly weighted elements, but a momentum indicator calculated from a basket of components can better reveal more of what is occurring below the surface of a particular market, as more information is available upon which to draw. Generally, the fewer issues that participate in an uptrend, the greater the probability that the trend is about to reverse. Similarly, the fewer stocks declining in the face of a new low in the market averages, the greater possibility that the market is about to reverse to the upside. Breadth momentum thus serves as an additional tool for monitoring potential divergences.

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