When it gets below 15, The Dow can move higher but there is not a lot of breadth to the move. When it is below zero, the Dow usually declines. When the diffusion indicator drops below minus 15 (-15) and starts to turn up, its a pretty good buy signal.
Failure to confirm suggests that the stock market is not hitting on all cylinders. New highs in key breadth indicators, on the other hand, reflect broad underlying strength that validates the overall uptrend. I like to use the breadth indicators for the S&P 1500 because this is a broad index that covers large-caps, mid-caps, small-caps and Nasdaq stocks. Over 500 stocks in the S&P 1500 are traded on the Nasdaq.
$SUPHLP is the “Percentage High-Low Line” for the stocks in the S&P 1500. It’s the number of S&P 1500 stocks making new 52-week highs minus the number of stocks making new 52-week lows divided by 1500). This chart plots that percentage as a black cumulative line with a pink 10-period EMA signal line. The market has a bullish bias when the High-Low Line is above its 10-day EMA (rising) and a bearish bias when below (falling). Below the main price plot is SPY, the S&P 500 ETF, and its 10-period EMA. Below that is the non-cumulative version of $SUPHLP plotted as an area graph.
Bullish & Bearish Signals
$SMLHLP (S&P small cap) above 5% or below -5% dictate bullish or bearish signals respectively.
$SPXHLP (S&P 500)
!GT20SPX ( S&P Large Cap Index) When all three cross above 60% is bullish until a Cross below 40%, which is bearish. Verify all three are in agreement.
!GT20MID (S&P Mid Cap Index)
!GT20SML (S&P Small Cap Index)
$NYAD, the daily
The daily $NYAD is of great use in spotting a market that has become overbought or oversold.
$NYUPV tracks the daily up volume and when it drops below 80 it indicates that the market has gone into extreme oversold mode and that market participants should expect a bounce of one kind or another in the following session.
You can check $NYUPV throughout the day, but the readings don’t mean much until a few minutes before the close. Still, if the market is dropping like a rock and there is panic in the air, $NYUPV will let you know if there is enough panic.
I use $NYDNV to let me know when there’s just been too much buying and there just isn’t any down volume. At minimum, $NYDNV is warning of a pause day in the next session and at maximum it is warning of a short term market top of one degree or another.
$NYAD, the daily
The daily $NYAD is of great use in spotting a market that has become overbought or oversold. I use it in conjunction with the other indicators because I feel it’s important to have confirmation on as many fronts as possible.
$NYADV is the flip side of $NYDNV. With readings above 2500 it warns of an overbought market and warns of a pause day in the next session or a short term top of one degree or another. While it may seem that using $NYDNV and $NYADV is redundant, there are times when these two do not give sympathetic readings and it is the sympathetic readings that are most important and should put a trader on high alert.
$NYUD:$NYUPV is one of the most reliable indicators that I have found. It is useless when the market is rising but when the market begins to fall, $NYUD:$NYUPV will give great bottom signals. It works in sympathy with $NYUPV. The bottom signals come when $NYUD:$NYUPV drops to or below -12.
$NYHL New Highs-New Lows
I use $NYHGH as a way to make sure that new highs are moving in sync with the markets. I watch for times when $NYHGH either goes into positive or negative divergence. For instance, if the market drops one day and $NYHGH ticks up, then this indicates that there is underlying strength in the market and that the drop in the market shouldn’t be taken too seriously.
I mainly use the stochastic on the this chart. Once the NYSI begins printing candlesticks at or above +800, the broad indexes top and roll over within a couple months time.
I use $USHL in the same way that I use $NYHGH. I look for positive or negative divergence with the market as either red flags or green flags.
$NYMO McClellan Oscillator
$NYMOT McClellan Oscillator (Traditional)
A breadth thrust occurs when the McClellan Oscillator surges from deep negative readings to strong positive readings. Typically, the indicator will move from below -50 and exceed +50 for a +100 point thrust. A breadth thrust signals a surge in bullish breadth that can lead to an extended advance. Not all breadth thrusts foreshadow extended advances, but most important lows are marked by a sharp surge in breadth. A bullish breadth thrust is enhanced when preceded by a bullish divergence.