How the market breadth indicators are calculated
What is counted, when, and how the tests are run.
The stocks
Each trading day after the close, every US common stock and ADR over $5 a share is counted, about 4,000 to 5,000 companies, leaving out over-the-counter shares. A stock counts on a day when it closed over $5 and also traded the day before. Prices are adjusted for splits and dividends. SPY, the fund that tracks the S&P 500, is the yardstick every indicator is measured against.
States
Every indicator has one published rule that puts it in one of three states each day: bullish, neutral or bearish. Some can only be one of the two: the Hindenburg Omen is only ever bearish or neutral, the Zweig breadth thrust only bullish or neutral. The rules are standard settings, fixed before testing.
Two scores, two questions
- Market health (0-100): what is breadth like now? The indicators in the score each count +1, 0 or −1, equally weighted. High means broad internal strength. The health score.
- Market top risk (0-100): is weakness building beneath strong prices? Six warning signs that have tended to come before market tops, weighted as published. High means more warning evidence, not a probability of a fall. Top risk.
- A healthy market with high top risk is possible, and worth knowing about. A weak market with low top risk usually means the fall is already under way: the health score describes that.
The divergence monitor
When SPY makes a new 63-day high, five breadth families (the advance-decline line, new highs, participation, leadership and sectors) either confirm it or not. Two or more failing starts a watch. Each family counts once, so measures built from the same data do not vote twice. The monitor.
The tests
- Backtest: the rule applied to every trading day since 2017 (each indicator needs up to a year of history first). Hypothetical: the rule was written knowing what markets did.
- SPY or T-bills: hold SPY; while the rule is bearish hold T-bills (BIL) instead. The switch is made at the close of the trading day after the signal, paying 0.10%.
- SPY after each state and after each signal: what SPY did over the next one, three and six months.
- Declines: every fall of 10% or more in SPY from a closing high, and whether the rule was bearish by then.
- Variants: the same measures for other common settings, so a result that hangs on one exact number shows.
- Live record: from go-live (Oct 16, 2026), each reading is made after that day’s close and kept as made. Every rule carries a version; a changed rule gets a new version and its own live record.
- Warnings: for the top-risk score and the divergence monitor, each warning is checked against what followed: falls of 5%, 10% and 15% within 30, 60 and 90 trading days, false alarms a year, and how long before each high it came.
Limits worth knowing
The history starts in 2016, so it holds only a handful of real declines: late 2018, early 2020, 2022 and the spring of 2025 among them. Any indicator can look good or bad on so few events by chance. Treat every number here as a description of the past, not a forecast.
Educational only. Nothing here is a recommendation to buy or sell anything. See the disclaimer.
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