The Length and Breadth Of It

JC Parets
November 27, 2021

The market has been in a corrective mode for a little over a month. While this correction has been gaining some momentum, we took a look at the breadth internals of the market at this stage to dig a little deeper.

One important factor when the market was making new highs, was a lack of breadth expansion.

Now the important factor when the market is making lows is breadth expansion.

We keep saying how the lows will first show up in the short-term time frames and then progress to the longer-term time frame charts.

So let's take a look at these charts in the same manner.

Here, we are looking at the breadth in the Nifty 50.

First up, let's take a look at the 10-day list. Since the correction has intensified over the last couple of weeks, what is it that is reflected in the short-term time frame?

Click on the chart to zoom in.

Here we have it. As Nifty 50 has been moving lower from its all-time highs, the percentage of stocks making New 10-day highs has certainly decreased. But what has increased dramatically is the percentage of stocks making 10-day Lows. Currently, 66% of stocks are making new 10-day lows. Definitely, a breadth thrust compared to what we've seen since the 2020 market recovery.

So are the higher time frames suggesting a continued weakness as well?

Let's check it out.

Here we have the percentage of stocks over a 21-day time frame. In essence, this is a one-month time frame.

The first point of difference here is the lack of breadth thrust. But despite that, the percentage of stocks making 21-day lows has spiked to 41%. So we're closing in on almost half the stocks in the Nifty 50, trading at one-month lows.

So there is definitely weakness creeping in over the short-term time frame as we saw in the two charts above. And from a tactical perspective, we haven't seen a sign of an end to this correction yet.

Just to put things in perspective, let's also look at the 6-month time frame.

While the chart may not be extremely clear, the percentage of stocks making a new 6-month low is at 11% right now. Historically speaking,  Nifty has experienced an expansion of this breadth of new 6-month lows up to the level of 25% over a mid-cycle correction. So from that standpoint, this is not as bad as the charts above, that are focusing on the immediate short-term trend.

What is important to note here, is that the breadth expansion will always begin to show up first in the short-term time frame charts. If that trend persists we will get an uptick in the medium/long-term charts as well. But as soon as these breadth thrusts come to shore in the short-term time frames, it is important to be vigilant of the market trend. This is the point where we need to identify signs of which way the market may be headed.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team

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