What is Market Breadth Telling ....???

What goes up must come down and vice versa....unless Ben Bernanke controls the market....
O Ashuji...

Just like buying exhaustion, market also experiences selling exhaustion and if market fails to bounce in spite of intense selling as reflected in breadth and % fall, crash follows (fall >10% in a month). Market Crash are rare and even rarer when most experts on "business" channels are in sell mode. Let the data talk...

Market (All NSE Stocks) Breadth and Nifty Return

1) Market Breadth considers all NSE Listed stocks.

2) Getting % of advance stocks of less than 40% in a given month is typically a very negative breadth market and same is reflected in Nifty Returns.

3) Since 2000, there have been 18 months (out of 155 months), which had less than 40% of advancing. Only 4 times, following month had negative return (1-3% negative).

4) Consecutive months with breadth less than 40% is rare and is typically sign of very intense selling. There have been only 2 cases of such scenario - Sep-Nov 2008 (peak of crises) and Nov-Dec 2011. Both Periods were followed by sharp rise in the market in the following month.

5) Feb 2013 had market breadth of 38% (advancing stock)  with Nifty, NSE Mid Cap and NSE Small Cap falling by 5.8%, 13.5% and 10.2% respectively. March 2013, these Indices fell by 0.2%, 3.9% and 4.9% respectively. Breadth data for March 2013 is not yet available there is high possibility of breadth being less than 40% which would make Feb-March 2013 as back to back months with less than 40% advancing stocks. Such, scenario is usually followed by rebound in markets.

6) Under above scenario if market fails to bounce fall can be very sharp in April-May 2013 but given sentiment and damage probability of bounce is higher.