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We are in a seasonally bullish period for the stock market, and every business news channel is currently telling viewers to “get in before you miss out”. What they fail to say is that you need to look at market indicators before you do. The market’s poor breadth is particularly useful to guide your trading right now.

Breadth dictates price action
Price and volume are the king and queen of the indicators, but breadth is important marker for predicting price action.It is the difference between stocks that are advancing and those that are declining. This differential tells us important information about the market conditions. Who is buying? What stocks are strong or weak? How can we get on the right side of the trade?

What does poor breadth mean?
Poor breadth is really underutilized as an analytical tool. People simply don’t believe that when markets are weak, they tend to stay that way – at least for the day. When breadth is poor, as it has been recently, there is a lid on the price action. In other words, stocks will rarely run wild to the upside.Breadth was poor every single day last week, even though markets rose up sharply on Wednesday. The SPX 500 and Nasdaq were the best performers but were down on the week. The worst index was the Russell 2K. Keep your eye on this index. Its poor breadth will tell us if markets will be strong or weak.These next couple of weeks will be interesting, to say the least. Sentiment is bullish, the markets are modestly oversold, support is strong (just look at the 20-day moving average), and breadth is horrific (overall). If this continues, you’ll want to step back or lay low until the poor breadth turns. In a low volatility environment, swings to the downside can be nasty.And remember: Indicators – not the calendar – should guide your buy/sell decisions.More By This Author:Gap Inc: Chart Analysis 5 Things Driving The Bullish Stock Market Trend Right Now Lowe’s Companies Inc: Chart Analysis