The Market's Bad Breadth

Market technician James Stack forecast the stock selloff based on its breadth -- the large number of stocks falling even as the market was setting record highs. He thinks we're in for a "garden-variety" bear market.

The stock market clearly telegraphed its ensuing decline just as it was peaking the week of July 16-20, says market technician James Stack. Even as the market was setting records on three of four days, more stocks declined than advanced on those days.

Why should that matter? Stack, president of InvesTech Research, a market research firm in Whitefish, Mont., says the market's breadth -- that is, the number of stocks rising relative to the number falling -- is crucial to diagnosing the market's health. More decliners than advancers was one sign of bad breadth, he says. Another was that stocks of large companies were rising while stocks of smaller companies were falling. A third: Within five days after the market hit its peak, on July 19, more than 20% of stocks hit new 52-week lows.

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Steven Goldberg
Contributing Columnist,
Steve has been writing for Kiplinger's for more than 25 years. As an associate editor and then senior associate editor, he covered mutual funds for Kiplinger's Personal Finance magazine from 1994-2006. He also authored a book, But Which Mutual Funds? In 2006 he joined with Jerry Tweddell, one of his best sources on investing, to form Tweddell Goldberg Investment Management to manage money for individual investors. Steve continues to write a regular column for and enjoys hearing investing questions from readers. You can contact Steve at 301.650.6567 or