Three Market Internals

Market breadth (often called market internals) refers to indicators that measure the participation or underlying strength of the market. Rather than looking only at major index levels (like the S&P 500 price), these indicators dive under the hood to see how many stocks are actually performing well versus struggling. If most stocks are moving in the same direction as the index, that typically shows a healthy or broad-based trend. If just a handful of large-cap names are carrying the index while most other stocks lag, it might signal a weak or narrow rally.

Percentage of Stocks Trading Above Moving Averages

How It Works

• Definition: This indicator tracks the percentage of stocks (in a given index or market) whose share price is currently above a specific moving average (e.g., 5-day, 20-day, 50-day, 200-day).
• Interpretation:
• • A high percentage (say 80% or more) indicates that most stocks are trading above that moving average, suggesting strong participation in the current uptrend.
  • A low percentage (say below 20%) may indicate a broad sell-off or a potential oversold condition.

Tradingview: S5TW

Why Technicians Use It

• They want to see broad participation in an uptrend, not just a few big stocks skewing the market cap-weighted index.
• It can also help identify overbought/oversold extremes. For instance, if nearly 90-100% of stocks are above their 50-day moving average, the market might be due for a pullback.

Simple Explanation

“This measures how widespread the trend is. If most stocks are above their moving averages, it’s a healthy market; if only a few are, it’s shaky.”

Tradingview symbols

• S5FD : S&P 500 stocks above 5-day moving average
• S5TW : S&P 500 stocks above 20-day moving average
• S5FI : S&P 500 stocks above 50-day moving average
• S5TH : S&P 500 stocks above 200-day moving average

The S&P 500 Advance-Decline Line (A/D Line)

How It Works

• Definition: The A/D Line plots the cumulative net number of advancing stocks minus declining stocks each day within the S&P 500 (or any chosen universe).
• 1. On a given day, you calculate (Advancing Stocks – Declining Stocks).
  2. Add that daily figure to the prior day’s cumulative total.
  3. Plot the running total over time.
• Interpretation:
• • If the line is rising, it means more stocks are advancing than declining overall, indicative of broad-based market strength.
  • If the line is falling, more stocks are declining than advancing, a sign of weak participation.

Tradingview Indicator: Advance-Decline line

Why Technicians Use It

• It is one of the oldest and most popular measures of market breadth. A rising index with a falling A/D line(negative divergence) can be an early warning that the rally may not be sustainable. Conversely, if the market indexes are flat but the A/D line is trending higher, it suggests improving internal strength.

Simple Explanation

“It’s like a running ‘score’ of how many stocks are going up vs. going down. If that score keeps going up, the market trend is broad and healthy.”

NYSE New Highs

How It Works

• Definition: Tracks the number of stocks on the NYSE making new 52-week highs, new 5-day highs, new monthly highs or new highs in general.
• Interpretation:
• • A rising count of new 5-day highs indicates a strong or strengthening market.
  • A declining count of new 5-day highs, even when the index is moving upward, might signal that fewer and fewer stocks are participating in the rally.

Tradingview: M5HP

Why Technicians Use It

• Shows how many stocks are achieving breakout conditions. If indices are reaching record levels but the number of stocks making new highs is shrinking, that’s often a sign of narrowing leadership and a potentially fragile rally.

Simple Explanation

“This measures how many stocks are hitting fresh yearly, monthly, or weekly peaks. If lots of stocks are hitting new highs, it’s a sign of broad market strength.”

Tradingview symbols

• HIGN: NYSE new highs
• M5HN : NYSE 5-day highs
• M1HNI : NYSE 1-month highs
• MAHN : NYSE 52-week highs

Market Internals

Market internals or breadth indicators include any measure that looks under the surface of index price action to gauge the health and participation of the entire market.

Key Takeaways

1. Percentage Above Moving Averages
2. • Shows how many stocks are in short-term vs. long-term uptrends.
   • Used to gauge broad market strength or potential extremes.
2. Advance-Decline Line
3. • A classic breadth measure indicating net advancing vs. declining issues.
   • Divergences between the A/D line and price can signal underlying weakness or strength.
3. NYSE New Highs
4. • Tracks how many stocks are reaching fresh annual highs.
   • Declining new highs can hint at waning participation under the surface.
4. Market Internals
5. • These indicators provide insight beyond price and help confirm or question the validity of a market’s move.

In summary, technicians use these breadth indicators to get a clearer picture of the market’s true health, spotting potential divergences or confirmations that might not be obvious by just watching index prices alone.