NASDAQ’s market breadth favors 1:20 continued upside.

Market breadth allows us to take a look under the hood of the market to determine if many or only a few stocks are driving the market up, or down. When for example many stocks participate in an uptrend it means breadth is strong and continued upside can be expected, despite a few minor “profit taking” corrections along the way. Those simple reset the clock so to say.

To that extent we took a look at the McClellan Oscillator of the NASDAQ; called NAMO. It measures the difference between the number of advancing and declining stocks in this index. See here for further background. The chart below shows NAMO since the price low made in March 2009 and the subsequent bull market that emerged.

namo

Last week the NAMO registered a >70 reading, after a >90 reading made in early March this year. We went back over the entire bull since the March 2009 low to determine similar high readings and setups. The vertical dotted lines all show readings >60: 20 occasions including the current most recent reading. Except in 2011, (red dotted line); all >60 readings led to considerable upside in the weeks and months ahead, even after some retraces. Readings >90 have not occurred prior in this bull, and only came close to it in late-March, early-April 2009. Hence, odds favor 1 in 20 continued further upside for the following weeks and months to come. The historical high >90 reading confirms this. The >90 breadth reading followed by the recent >70 breadth reading appears similar as the set ups experienced in 2010 and 2011/2012.

These high breadth readings complement the technical analyses we provided two weeks ago, see here, in which the charts foretold us that most likely an up move to NAS5300 was underway. Since then the NASDAQ has added 4%: So far so good 🙂

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