Intro – headlines are not the whole story
At first glance, the market looks stable. Indexes like the S&P 500 or Nasdaq are hitting record highs, and the media talks about a new wave of optimism. But if we look closer, not all stocks are participating in this rally, and the real picture may be very different from what you see in the headlines.
Breadth shows how many stocks in an index are actually going up versus how many are going down. If the growth is driven only by a few of the largest companies, it means the market’s foundation is weaker.
For example, if the Nasdaq is gaining mainly because of a handful of tech giants, while most other stocks are stagnating or falling, it’s a sign that the rally is not broad-based and the market could be more fragile.
We often focus on technical divergences, for example in indicators like RSI or MACD. However, monitoring the relationships between different markets can also be a strong signal. For instance, major indexes may continue to rise while smaller and broader indexes, such as the Russell 2000, start losing investor support. This means that part of the market is already weakening, and investors are concentrating on a smaller number of stocks. Such developments often precede shifts in overall market sentiment.
When indexes rise on low trading volumes, it suggests that buying power is fading. Institutions may quietly reduce their positions while retail investors keep buying. We also track sentiment using the put/call ratio. If more investors are hedging against a decline than betting on growth, it can be a sign to be cautious.
Media prefers to show a simple and positive picture of the market because it sells better. Indicators like breadth, divergences between indexes, or sentiment require more explanation and therefore rarely make it into the headlines that most investors see.
We don’t just watch the main indexes, but also how many stocks are actually contributing to growth. We track trading volumes and sentiment to spot changes in mood before they spread across the market. We build portfolios to be ready for different scenarios and to take advantage of opportunities even when most investors only see optimistic headlines.
Note: This article is for informational purposes only and does not constitute investment advice. Investing in financial markets involves risks, and it is important to conduct your own analysis before making any investment decisions.