Sometimes what seems logical and helpful, is not and needs to be reconsidered. This is my conclusion with the sector breadth models. They are logical, and perhaps helpful at times, but they do not add value when it comes to timing trends in the sector SPDRs. A simple StochClose strategy performed better overall. This article will quantify signals for three breadth models using the sector SPDRs.
This article covers the Trend and Thrust Breadth Models in detail. We start with an overview of breadth and explain why the S&P 500 is my preferred index for measuring broad market breadth. Attention then turns to the individual indicators and the key levels for generating signals. These models use a “weight of the evidence” approach
Breadth indicators are also referred to as market internals. As the “vital signs” for an index or sector, breadth indicators reflect aggregate performance for the individual components. As such, breadth indicators can provide leading signals by strengthening before a bottom or weakening ahead of a top. After all, the whole is only as good as the sum of the parts