The Market’s Underlying Story: Breadth Indicators Explained

Market Breadth Indicators 
You often hear people say, 'The market is good today' or 'The market is bad today,' usually based on how benchmark indices like the Nifty or Sensex are performing. However, this view can be misleading. These indices are not always accurate representations of the entire market. Sometimes, just a few heavyweight constituents might be dragging the index down, even though the majority of stocks are actually trading positively. Therefore, relying solely on Nifty or Sensex can give an incomplete or even distorted picture of the market's true health. To get a more comprehensive understanding, we need to look at market breadth indicators, which reflect the overall participation of stocks and offer a clearer view of the market's direction. 

What is Market Breadth?
Market breadth measures how many stocks are participating in a market move. It shows whether most stocks are rising or falling, not just the index. Strong breadth means broad participation, while weak breadth suggests only a few stocks are driving the trend. It's key to understanding overall market strength. 

Advance-Decline Line (A/D Line)
The A/D Line is a cumulative indicator that tracks the net difference between the number of advancing stocks and declining stocks each day. It reflects the overall breadth of the market — whether more stocks are going up or down over time. 

How to Use the A/D Line?
When both the index and the Advance-Decline (A/D) line are rising, it signals a broad-based rally and gives bullish confirmation. However, if the index is rising but the A/D line is falling, it means fewer stocks are participating, which could indicate underlying weakness or a potential divergence. If the index reaches a new high but the Advance-Decline (A/D) line doesn’t, it may indicate a weakening rally or a potential reversal. This kind of signal, known as spotting divergences, serves as an early warning that the broader market may not be supporting the move, and caution is advised. A rising Advance-Decline (A/D) line indicates a strong market foundation with broad participation. In contrast, a flat or falling A/D line signals weakening participation, hinting at potential underlying market weakness. 

The chart illustrates a notable negative divergence between the Nifty (green) and the NSE Advance-Decline (A/D) line (red) during September 2024. While the Nifty continued to edge higher, the A/D line declined steadily, signalling that fewer stocks were participating in the rally. This type of divergence often serves as an early warning of weakening breadth, suggesting the index gains were driven by a narrow set of heavyweights rather than broad market strength. Indeed, the Nifty eventually reversed course in the months that followed, validating the caution implied by the A/D line. 

Things to Keep in Mind
•  Large-Cap Bias: Index may be up because of a few big stocks, but A/D line focuses on broad participation, regardless of size.  
•  Short-Term Noise: A/D line can be volatile in the short term. Use moving averages to smooth it.
•  Better for Indexes with Many Stocks: Works better for broader indexes (e.g., NSE 500 vs. Nifty 50). 

Advance-Decline Ratio (A/D Ratio)
The Advance-Decline Ratio measures the relative strength of advancing stocks to declining stocks on a given day. It tells you whether more stocks are going up or down in proportion to each other, helping assess market breadth. 

How to Use the A/D Ratio?
A value greater than 1 indicates more advancing stocks, reflecting bullish sentiment, while a value less than 1 shows more decliners, pointing to bearish sentiment. A value equal to 1 suggests the market is evenly split between advancers and decliners. A consistently high Advance-Decline (A/D) ratio signals a strong uptrend and sustained market strength. 

Conversely, a low or falling A/D ratio may point to weakening momentum or the onset of a bearish phase. Applying a 10-day or 20-day moving average to the A/D ratio helps smooth out daily fluctuations. This makes it easier to identify broader trend shifts and assess the market's underlying direction. 

Things to Keep in Mind
• Short-Term Indicator: The A/D Ratio is not cumulative like the A/D Line. It reflects daily sentiment, so it’s more volatile.
• Avoid in Narrow Markets: In indexes with fewer stocks (e.g., Nifty 50), the ratio can be skewed by just a few stocks.
• Best Used with Other Indicators: Combine it with volume, A/D Line, or price action for confirmation. 

New Highs vs New Lows
This is a breadth indicator that compares the number of stocks reaching new 52-week highs to those hitting new 52-week lows on a given day. It helps measure the strength of market trends and overall investor sentiment. 

How to Use New Highs vs New Lows?
The New Highs vs New Lows indicator is a powerful measure of overall market strength and sentiment. When the number of stocks reaching new highs exceeds those hitting new lows, it indicates bullish momentum and broad-based participation. 

On the other hand, if new lows consistently outnumber new highs, it reflects bearish conditions or a weakening market tone. This straightforward comparison provides insight into whether investor confidence is widespread or limited, helping to validate or question the broader trend. Beyond assessing sentiment, this indicator is also effective for confirming trends or identifying early warning signs. If a market index is rising alongside an increase in new highs, it reinforces the likelihood of a strong, sustainable uptrend. 

However, if the index continues to climb while new lows begin to dominate, it reveals underlying fragility—a potential red flag. Similarly, when prices move upward but the number of new highs starts to decline, it may signal a divergence, often seen before a reversal or correction, prompting investors to exercise caution. 

The chart captures the daily ratio of stocks trading above their 52-week highs (blue bars) and those hitting 52-week lows (orange bars) from June 2 to July 2, 2025. A rising ratio of highs — especially visible around June 26–27 — signals broad bullish participation across sectors. In contrast, the low ratios of 52-week lows during most of the period highlight limited downside pressure. Such ratio-based indicators offer a cleaner view of market strength or weakness by smoothing out distortions from absolute stock counts. 

Things to Keep in Mind
• Timeframe Sensitivity: The typical period is 52 weeks, but it can also be customised (e.g., 20-day highs/lows for short-term).
• Broader Market Works Better: More effective on wider indices (e.g., NSE 500 or NYSE) than on narrow ones (like Nifty 50).
• Lagging Indicator: It often confirms trends, but isn't great for early signals. 

Percent of Stocks Above Moving Average 

This indicator measures the percentage of stocks within a given index (such as the Nifty 50 or NSE 500) that are currently trading above a specified moving average, typically the 50-day or 200-day average. A stock trading above its moving average is generally considered to be in an uptrend, reflecting strength and positive momentum. By calculating how many stocks in the index are above their moving averages, this indicator reveals how broad-based the market trend is — whether it's being driven by many stocks or just a select few. 

This indicator can also be applied to sectoral indices (like Nifty IT, Nifty Bank, or Nifty FMCG) to identify which sectors are currently trending. By observing the percentage of stocks within a sector trading above their moving averages, investors can gauge sector strength and spot which segments of the market are showing momentum — helping with sector rotation strategies or trend-based allocation. 

How to Use It?
The Per cent of Stocks Above Moving Averages is a valuable indicator for assessing the depth and strength of a market trend. By tracking how many stocks in an index are trading above a selected moving average—typically the 50-day or 200-day—it reveals the level of participation in the trend. A high percentage, generally above 70 per cent, points to a strong uptrend with broad market support, while a low percentage, often below 30 per cent, suggests a weak or declining market where most stocks are underperforming. 

This indicator is also useful for identifying potential overbought or oversold conditions. When nearly all stocks—say, over 90 per cent—are trading above their moving averages, it may indicate an overheated market that's vulnerable to a pullback or short-term correction. Conversely, if fewer than 10 per cent of stocks are above their moving averages, the market could be in an oversold state, potentially setting the stage for a rebound. Additionally, watching for divergences between the index and this percentage can offer early warning signs. If the index continues to hit new highs while fewer stocks remain above their moving averages, it signals weakening breadth— suggesting that the rally may not be as strong as it appears on the surface. 

The chart displays the percentage of stocks trading above and below their 200-day moving averages (DMA) across key sectors. The banking sector leads with over 90 per cent of stocks above the 200-DMA, indicating strong bullish momentum. In contrast, IT and Power sectors show weakness, with the majority of their stocks trading below the long-term average. Sectors like Metals and Oil & Gas exhibit strength, while FMCG and Realty remain evenly balanced. This breakdown offers a snapshot of sectoral health and helps identify relative outperformers and laggards in the current market environment. 

Things to Keep in Mind
• Choose MA Carefully: The 50-day MA reflects short- to medium-term trends, while the 200-day MA is better suited for assessing long-term market direction.
• Better with Larger Index: Works best with broad indices (e.g., NSE 500 or Nifty 100) to avoid skew from a few stocks.
• Use with Confirmation: Best when combined with other breadth indicators (like A/D Line or New Highs vs Lows). 

Volume Breadth
Volume Breadth measures the amount of trading volume associated with advancing stocks versus declining stocks in a market or index. While indicators like the A/D Line focus on the number of stocks moving up or down, volume breadth adds a deeper layer by analysing the intensity of that movement— based on trading activity. 

How to Use Volume Breadth?
To confirm price moves, volume plays a critical role. When the market rises alongside strong up volume, it typically indicates a healthy, broad-based rally with participation across sectors. This suggests the upward move has conviction and strength behind it. In contrast, if the market is rising but the up volume is weak, it may be a warning sign. Such a move could lack strong buying support, signalling that the rally might not be sustainable. 

Spotting divergences between price and volume can reveal underlying market weakness. For example, if the index is moving higher but up volume is declining, it indicates weak buying pressure and suggests that fewer participants are supporting the rally. This can be an early sign of exhaustion in the uptrend. 

Similarly, if the market appears flat yet down volume dominates, it may hint at stealth distribution—a scenario where smart money is quietly selling while prices remain stable, potentially foreshadowing a downturn. The volume breadth ratio helps signal market strength. A ratio above 1 indicates bullish momentum, while a ratio below 1 reflects bearish sentiment. Extremely high or low values may suggest overbought or oversold conditions, signalling a possible reversal. 

Things to Keep in Mind
• Volume spikes can distort: High volume in just one or two large-cap stocks may skew the data.
• Intraday variation: Volume changes rapidly throughout the day; best interpreted on a closing basis.
• Works best in combination: Should be used alongside price-based breadth indicators (like A/D Line) for a fuller picture. 

The Cumulative Tick Index
The Cumulative Tick Index is a market breadth indicator that tracks the net number of stocks trading on an uptick versus a downtick throughout the trading day. It is based on TICK data, which is a real-time measure showing how many stocks are trading:
• Above the last trade (uptick)
• Below the last trade (downtick) 

The cumulative version of this index sums up the TICK values over time to show the overall intraday buying or selling pressure in the market. 

How to Use the Cumulative Tick Index?
Intraday market sentiment can be tracked using the Cumulative Tick Index. If the index is rising, it means there’s consistent buying pressure, with more stocks showing upticks. If the index is falling, it signals selling pressure, with more stocks showing downticks. 

Trend confirmation can be judged using the Cumulative Tick Index. When prices are rising and the index is also rising, it signals a strong and healthy rally with solid buying support. However, if prices are going up but the Cumulative Tick Index is falling, it suggests the trend may be weak or that hidden selling is taking place behind the scenes. Sudden shifts in the slope of the Cumulative Tick line may signal short-term reversals in price. 

Things to Keep in Mind
• Real-Time Tool: Best used by day traders or short-term traders, as it provides intraday signals.
• Not based on volume or price: Purely based on uptick/ downtick counts, so should be used with other indicators.
• Noise Sensitive: Short-term fluctuations can be noisy; smoother signals come from cumulative values over time. 

Applications and Strategy: How to Use Market Breadth Indicators
Market breadth indicators are not just academic tools—they have real-world applications for investors, swing traders, and even intraday participants. They can help with market timing, trend confirmation, sector rotation, position sizing, and also act as a confirmation layer for technical setups like breakouts or chart patterns. 

Here's how you can apply them to improve your decisionmaking and gain deeper insight into market dynamics: 

1. Confirming Market Trends —
Breadth indicators help verify whether a price move in the index is supported by a large number of stocks. For example, if the Nifty 50 breaks out to a new high, you can check the Advance-Decline Line or the percentage of stocks above their 50-day moving average. If these indicators are also rising, it signals a strong, broad-based rally—suggesting it may be a good time to increase exposure. But if they’re falling, it shows weak participation, so it’s better to avoid chasing the rally. 

2. Spotting Divergences for Reversal Signals —
Divergences between the index and breadth indicators can warn of trend exhaustion or a possible reversal. For example, if the Nifty keeps rising but the New Highs vs Lows is declining, it suggests fewer stocks are participating—indicating weakening momentum. This can be a warning sign to tighten stop losses, reduce position sizes, or book profits. 

3. Market Timing and Position Sizing —
Market breadth indicators are excellent tools for identifying extreme conditions in the market, which can help in timing your entries and exits, and adjusting position sizes based on risk. 

Oversold Breadth
When less than 10 per cent of stocks in an index (like Nifty 500) are trading above their 50-day moving average, it signals that the market may be oversold. This often occurs during panic or heavy selling phases and can be a contrarian buy signal—look for long setups or begin accumulating positions. 

Overbought Breadth
When more than 90 per cent of stocks are trading above their 50-day or 200-day MA, the market may be overbought or overheated.This condition typically reflects euphoria or exhaustion, and may precede a pullback or correction—a good time to reduce exposure, tighten stop-losses, or consider hedging strategies. These thresholds don’t guarantee reversals but alert you to elevated risk or opportunity zones. Used with price action and volume confirmation, they provide a powerful edge in market timing and risk management. 

Conclusion
While benchmark indices like the Nifty and Sensex grab the headlines, they don’t always tell the full story of the market’s health. A rally led by just a few heavyweight stocks can mask underlying weakness, and a falling index might overlook strength in the broader market. That’s where market breadth indicators come in—they provide a deeper, more accurate view of market participation and sentiment. 

By using tools like the Advance-Decline Line, New Highs vs Lows, Volume Breadth, and the Per cent of Stocks Above Moving Averages, investors and traders can go beyond the surface and understand whether a trend is truly supported or just skin-deep. 

Incorporating breadth analysis into your market view adds context, improves decision-making, and helps avoid being misled by index movements alone. Whether you're managing a long-term portfolio or making short-term trades, understanding market breadth can be your edge in reading market behaviour more clearly and confidently. 

Decoding Risk and Return: Insights from 30 years of Market data on Equity, Gold, and Fixed Income 

Every investor, at some point, grapples with the same question: Where should I put my money today so I won’t regret it tomorrow? In times like these, marked by market volatility, record-high commodity prices, and evolving monetary policy, this question has only grown more relevant. Gold and silver prices have soared to their all-time highs due to global uncertainties and investor caution. More surprisingly, equity markets are also close to their all-time highs, despite economic uncertainties, underwhelming corporate earnings, trade tariff-related threats, and two full-fledged wars. High valuations on these asset classes combined with a drop in interest rates on traditional fixed deposits with banks, which have long served as a comfort zone for conservative investors, have intensified the dilemma of where to invest safely and profitably. 

Against this backdrop, this article examines historical data to identify patterns in the risk-return dynamics of the three most widely held asset classes: equities, fixed-income securities, and gold. By analysing annualised returns from 1996 to 2025, the study provides an empirical foundation for assessing conventional investment wisdom, which states, ‘the higher the risk, the higher the return.’ A closer look at nearly three decades of data suggests that risk, when misunderstood or poorly measured, can erode value rather than enhance it. As Warren Buffett famously said, ‘Risk comes from not knowing what you’re doing.’ This article attempts to bridge that gap in understanding through evidence. 

The research draws on data from the CNX Nifty 50 Index (representing equities), 10-year Government of India bond yields (as a proxy for fixed income), and gold spot prices (MCI 99.5/10 grams) from 2008 onwards. This framework enables a clear and comparative evaluation of each asset’s performance across varying economic cycles, providing investors with greater clarity in navigating the current climate. We began by calculating annualised returns for these asset classes. 

To quantify risk, we use the standard deviation of returns as a measure of volatility across the asset classes. The results in Table 1 indicate that equity carries the highest level of risk, with a standard deviation of 19 per cent, followed by gold, while Treasury Bills (used as a proxy for fixed-income investments) exhibit the lowest volatility, with a standard deviation of around 2 per cent. Interestingly, despite its lower risk, Treasury Bills also deliver the lowest median returns, whereas gold slightly outperforms equity in terms of median returns, challenging conventional expectations. This suggests that for risk-averse investors, equity and gold may not appear favourable from a volatility standpoint, even though they offer higher return potential over time. 

To further explore how investment outcomes vary with time horizons, we analyse rolling returns over holding periods ranging from 1 to 15 years for equity and gold. For each duration, we compute the compound annual growth rate (CAGR), along with minimum, maximum, and standard deviation of returns, providing a more nuanced picture of the risk-return trade-off across different investment tenures. 

per cent over a 1-year horizon. However, as the holding period extends, the worst-case returns become consistently positive from the 6-year mark onward, and volatility becomes negligible beyond 10 years. This underlines equity’s suitability for long-term wealth creation. 

3. Gold Provides Stability but Limited Growth Potential:
Gold displays moderate risk and return characteristics. The maximum returns are lower than equity at most intervals, and the minimum returns are negative only up to the 5-year horizon, turning consistently positive from the sixth year onwards. While its long-term returns are less aggressive than equity, its lower volatility and consistency make it an effective diversifier in a portfolio. 

4. SIP CAGR Convergence at 14 per cent: Interestingly, both asset classes yield a CAGR of 14 per cent for a ₹10,000 annual SIP over the whole period, despite the differing risk profiles. This suggests that systematic 

Tables 2 and 3 provide the CAGR rolling returns and standard deviations of Equity and Gold, respectively. The results highlight a clear relationship between investment horizon and risk mitigation across asset classes. We summarise the findings here.
1. Volatility Decreases with Holding Period: Both Nifty 50 and Gold show a decline in standard deviation as the investment horizon increases. For the Nifty 50, volatility drops from 19 per cent for a 1-year holding period to just 2 per cent over 15 years. Gold exhibits a similar pattern, declining from 13 per cent to 1 per cent over the same horizon. This confirms that longer investment durations significantly reduce portfolio risk, making a strong case for long-term investing. 

2. Equity Offers Higher Upside but with Higher Shortterm Risk: Equity (Nifty 50) shows a higher maximum return potential in shorter durations (e.g., 56 per cent for 1-year, 43–45 per cent for 2–4 years), but also carries the risk of negative returns, with a minimum return of -19 investing can help smooth out volatility and enhance long-term outcomes, especially when applied consistently across market cycles. 

Investors seeking wealth maximisation should consider holding equity for the long term, ideally over 10 years, to mitigate downside risks and harness the compounding benefits. We also need to remember that since we used index values to calculate equity returns, we are not factoring in the dividend yield. Even if we assume a dividend yield of 1 per cent, given the same amount of risk, returns earned by investing in equity would be over 15 per cent more than those of Gold. Those with a moderate risk appetite or seeking portfolio balance may find value in including gold, particularly over periods of 5 years or more. Most importantly, the findings reinforce the idea that patience, diversification, and time in the market—not market timing—are the cornerstones of sound investing. We conclude with the words of legendary investor Warren Buffett: ‘The stock market is designed to transfer money from the active to the patient.’ 

Dr Ruzbeh Bodhanwala and Dr Shernaz Bodhanwala, Faculty at FLAME School of Business, FLAME University, Pune.