Many traders look at breadth measures like the Advance/Decline line or the McClellan Oscillator on an end-of-day basis. But let’s examine whether intraday breadth analysis can lend some value.
I ran a test back to April of 2001 looking at 15 minute bars in the SPY, the NYSE Advancing Issues and the NYSE Declining Issues. I wanted to see if strong or weak breadth in the morning led to price strength or weakness throughout the rest of the day. The rules for this test were fairly simple.
If advancers led decliners by 4-1 at 9:45, then I would buy the SPY and sell it at 4pm.
If decliners led advancers by 4-1 at 9:45 then I would short the SPY and cover it at 4pm.
Avg Win: 0.8%
Avg Loss: 0.5%
Avg Trade: 0.2%
Profit Factor: 1.72
Avg Win: 1.0%
Avg Loss: 1.3%
Avg Trade: 0.2%
Profit Factor: 1.36
In general, strong advance/decline numbers in the early morning show a mildly positive expectancy in the SPY for the rest of the day while weak a/d numbers show a mildly negative expectancy for the rest of the day.
Traders may benefit from tracking early morning breadth statistics. While this is certainly not something you would want to trade on its own, it may help to confirm or filter trades you are considering. Using breadth in conjunction with price and other kinds of analysis can make for a potent combination.
For those who would like to explore this concept more it is available for purchase and download in Tradestation format here. The study comes with flexible inputs to adjust times and breadth requirements. A pre-set workspace is also included.