The forest before the trees
In the first two lessons you learned to read one stock: its stage, and the 30-week line that tells you which way it is really going. This lesson steps back.
Most stocks move with the market. When the market is rising, even average stocks drift up; when it is falling, even great ones get dragged down. Stan Weinstein put it simply: look at the forest before the trees. Check the market first, then the sector, then the stock.
That raises a question that sounds easy: how is the market doing? Most people answer by looking at the S&P 500. This lesson is about why that answer is often wrong.
The index can hide the market
The S&P 500 is an average of 500 large companies, weighted by size. A few giants carry a big share of it (lately the ten largest have made up about a third of the index), so when they rise the index rises, even if most of the market is falling.
Thousands of stocks trade on the NYSE and Nasdaq. Market breadth asks the question the index can't answer: how many of them are actually rising?
We measure it in two simple ways, both updated after every close:
- The share of stocks in Stage 2: rising, above a rising line. Today: 29%.
- The share of stocks above their 200-day average: a rougher, faster read of the same thing. Today: 52%.
2021: a record the market didn't join
Here is the clearest example in recent US history. Watch both panels at the marked weeks.
If you only watched the S&P 500 in 2021, you saw a great year: the index rose about 27%. If you owned smaller growth stocks, many of them were already down by half before the year ended. The index was held up by a handful of large companies while much of the rest of the market fell.
Breadth would have told you. All year, far fewer stocks were rising than the index suggested. That is not a signal to predict a crash. It is a reason to be careful: to buy less, to be pickier, and to protect what you already own. The 2021 case study walks through it week by week.
2025: the warning came first
The same thing happened again, more recently.
Look at the order of events. Breadth peaked first, in February 2024. The index kept climbing for another year, carried by fewer stocks than at the start. By the time the S&P 500 turned down, the market underneath had been weakening for months.
2020: breadth turns up from the bottom
Breadth works in the other direction too, and this is the part that makes money.
When breadth is washed out, almost everything has already been sold. When it starts to turn up, with more stocks entering Stage 2 each week than leaving it, the tide is coming back in. That is when new Stage 2 breakouts have the market behind them.
How to read breadth in a minute
You don't need a formula. Ask three questions, in this order:
- Which way is it moving? Breadth improving over the last few weeks is a better sign than a high number that is slipping. Direction first, level second.
- Does it agree with the index? Index up and breadth up: a healthy market. Index up but breadth down: a narrow market, carried by a few names. Be careful.
- Are more stocks starting Stage 2 than ending it? That is the market's trend, one stock at a time.
Then let the answer change how you act, not whether you think:
| The market underneath is… | What it usually means for you |
|---|---|
| Broad and improving | The wind is behind you. Good Stage 2 setups have their best odds. |
| Mixed, or narrowing | Be pickier. Fewer, better positions; tighter stops. |
| Weak and falling | Protect what you own. New buys mostly fight the tide. |
Your step for this lesson
Before you open a single stock tomorrow, spend one minute on the market.
- Is the share of stocks in Stage 2 rising or falling over the last few weeks?
- Is it agreeing with the S&P 500, or disagreeing?
- What does today's market read say?
- Adjust: buy freely, be picky, or protect, before you pick a stock.
The market's mood, how many stocks are really rising under the index, and what changed this week, updated after every US close.
Questions people ask
What is market breadth?
Market breadth measures how many stocks are taking part in a move. If the index is rising and most stocks are rising with it, breadth is strong. If the index is rising but most stocks are falling, breadth is weak: the rise is resting on a few big names.
Why isn't the S&P 500 enough to judge the market?
The S&P 500 holds 500 large companies, weighted by size, so a handful of giants can carry it. Thousands of stocks trade on the NYSE and Nasdaq. At the end of 2021 the S&P 500 closed the week at a record while only about 37 US stocks in 100 were in Stage 2, down from 80 in 100 earlier that year.
How do you measure market breadth?
Simple ways are the share of stocks above their 200-day average, the share in Stage 2, the advance/decline line (a running total of rising minus falling stocks), and new 52-week highs minus new lows. They usually agree; when they don't, the direction they are moving in matters most.
What is a good level of market breadth?
There is no magic number. The direction matters more than the level: breadth improving from a low base is healthier than breadth slipping from a high one. Watch whether it is confirming the index or disagreeing with it.
How often should I check market breadth?
Once after the close is plenty: breadth moves over weeks, not minutes. Stage2Stocks updates today's market read after every US close.