V. 19:13 (46-52): Market Breadth or Beta by Dennis D. Peterson
Product Description
Market Breadth
Or Beta?
Breadth and beta both start with “b,” but what else do they have in common? Maybe a way to help make trading decisions.
by Dennis D. Peterson
Market breadth is a measure of market momentum. When momentum is positive and increasing, the market is bullish, and when momentum is negative and decreasing, the market is bearish. Some stocks are highly correlated with market momentum; that is, when the market is bullish, the stocks are rising, and when it is bearish, the stocks are declining. The correlation that a stock has with a market is known as its beta value. Thus, knowing how to measure market momentum is helpful in confirming the direction some stocks will take.
USING BETA
A beta of 1.0 means the stock and the market have highly correlated trends. A stock with a beta greater than 1.0 means the stock will increase (or decrease) faster than the market. For example, Microsoft (MSFT) has a current beta of 1.0 compared to the Nasdaq composite. But beta can change; in early 1997, MSFT was going up while the Nasdaq was going down, which drove down the beta to less than 1.0. When MSFT went up faster than the Nasdaq in the middle of 1997, its beta rose to greater than 2 (see Figure 1).
Breadth and beta both start with “b,” but what else do they have in common? Maybe a way to help make trading decisions.
by Dennis D. Peterson
Market breadth is a measure of market momentum. When momentum is positive and increasing, the market is bullish, and when momentum is negative and decreasing, the market is bearish. Some stocks are highly correlated with market momentum; that is, when the market is bullish, the stocks are rising, and when it is bearish, the stocks are declining. The correlation that a stock has with a market is known as its beta value. Thus, knowing how to measure market momentum is helpful in confirming the direction some stocks will take.
USING BETA
A beta of 1.0 means the stock and the market have highly correlated trends. A stock with a beta greater than 1.0 means the stock will increase (or decrease) faster than the market. For example, Microsoft (MSFT) has a current beta of 1.0 compared to the Nasdaq composite. But beta can change; in early 1997, MSFT was going up while the Nasdaq was going down, which drove down the beta to less than 1.0. When MSFT went up faster than the Nasdaq in the middle of 1997, its beta rose to greater than 2 (see Figure 1).
FOR THOSE ORDERING ARTICLES SEPARATELY:
*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.
| Take Control of Your Trading. |
| Professional Traders' Starter Kit |
| All these items shown below only $299.99! |
| Click Here to Order |