- The Breadth Factor

Market Summary
In our last two reports, we've mentioned that several of the major indexes have moved below the supports of their respective 200-day moving averages. This move below the support level is generally used by traders to suggest that the bears will remain in control of the longer-term momentum. Despite the bulls attempt to push the indexes higher, Friday's market breadth is suggesting that the direction will likely remain downward.

We've recently noticed a large divergence between the number of issues creating new highs and the number making new lows. Generally, traders don't expect to see a large number of new highs and lows occur simultaneously because it suggests that market participants are losing conviction and that they are unsure of the future direction.

On Friday we noted that 117 issues on the NYSE Composite Index created fresh 52-week lows, which equaled 3.4% of the traded issues (3,462). Also, there were 82 new highs, which equates to 2.4% of the traded issues. Readings above 2.2% are the first sign of a valid Hindenburg omen, which is an indicator used to predict market corrections. This relatively uncommon indicator suggests that the bulls have a lot of work ahead of them if they'd like to prevent a continuation of the downward momentum.