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“The Moment of Truth for Long-term Breadth Indicators

Since the start of the bull market in 2009, investors have been steadily keeping an eye on the principal breadth indicators of the stock maket. This is especially true as the market’s healthy gainsare largely contributed by the popularity of the monotonical economically-sensitive stocks. The widely tracked indices – DowJones Industrial Average (DJIA), S&P 500, NASDAQ Composite Index and Russell 2000 – have been reacting positively in a long streak of all-time-high while creating attractive investment opportunities. Nevertheless, investors and analysts shouldn’t forget to pay attention to the “lesser” types of breadth indiacators. These include NewHighs-NewLows, Advances-Declines, UpVolume-DownVolume, and Bullish Percent Index. While these might not be as timely as the other indicators, they’re still valuable to gauge the underlying momentum of the market. These more subtle indicators have recently retreated from their highs, hitting a “moment of truth” so to speak. Further declines could cause some nervousness among the market players if this trend continues. But is there more to this retreat than meets the eye? For starters, the long-term trend of extremely low volatility as evidenced by the bullish percetnage index suggests that the market has been excessively complacent. It’s always important to utilize the Marketbreadth Indicators in conjunction with the market’s trend as well as normalcy. On the other hand, the Advances-Declines figure is still on an uptrend. This indicates that there are still more advancers than decliners. Another positive sign is the UpVolume-DownVolume measure which has consistently remained above positive levels. All of this suggest that there is still strength in the underlying market. In any case, investors should keep a close eye on the leading breadth indicators and analyze if the retreat is an indication of a bearish trend or simply a consolidation period before a new bullish wave. At the same time, investors should diversify their portfolios to reduce the risk of investing in overvalued assets. In conclusion, while the long-term breadth indicators hitting a moment of truth is definitely something of concern, investors should also keep in mind that the market is still in a long-term bullish trend. It would be wise for investors to continue to pay attention to the reportings of all the pertinent marketbreadth indicators and to diversify their investments in light of the recent retreat.