Traditionally, analyzing the breadth of the market as part of our annual outlook is one of our absolute musts. The fact that investors are able to quickly and easily check a large number of stocks with the help of our analysis method is undoubtedly one of the most important strengths of technical analysis. Based on the impressions gained, investors can decide whether the market phase is basically good, in which the tide lifts all boats, or whether the wind is blowing from the front. We would like to begin our assessment of the fundamental state of the market with a look at the oldest market breadth indicator of all: the advance/decline line. This market breadth measure results from the balance of rising and falling stocks for all securities listed on the NYSE. While we assumed a distribution phase a year ago, investors have had to assume that the downward trend has been intact since then (see chart). The market breadth indicator for the technology-heavy Nasdaq Comp. is even weaker. The degree of selectivity has increased massively, especially in the favorite sector of the last decade, so that the stock market will probably need a new driving force in the coming years.
Advance/Decline Line NYSE (Daily)
Source: macrobond, HSBC² / 5-year chart attached
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