Breadth Indicators are mathematical formulas that measure the number of advancing and declining stocks, and/or their volume, to calculate the participation in a stock index's price movements. By evaluating how many stocks are increasing or decreasing in price, and how much volume these stocks are trading, breadth indicators help confirm stock index price trends or warn of impending reversals. The most popular breadth indicator is the advance-decline line (ADL), which is computed by subtracting the number of declining issues from advancing issues on any given day. A rising ADL suggests that more stocks are participating in an upward move (bullish), while a falling ADL suggests more stocks participating in a downward move (bearish).Another common breadth indicator is called cumulative advance-decline (CAD). This measures total advances minus total declines over some period of time - typically either days, weeks or months - to get an idea if bulls or bears have been more aggressive lately. When CAD rises it indicates that there has been more buying than selling activity over this period; bullish sign. Conversely when CAD falls it shows there has been greater selling pressure then buying; bearish sign. Breadth indicators can also be used to measure market internals such as up volume vs down volume and new highs vs new lows ratios.
