Market Breadth: Any Edge?

[marketsurfer]

This Market Breadth theory is well entrenched in the minds of most financial professionals as well as retail investors. A cursory internet search reveals that it is by far the dominant idea regarding Market Breadth.

We decided to take this well accepted theory, that seems to make perfect sense, and put it through vigorous, statistically valid tests. What we discovered is quite surprising. Not only is the accepted idea wrong, the opposite proved to be true. An 8 year period was tested revealing that the traditional wisdom could not be more wrong. We tested advancing issues being greater than declining issues for multiple days in a row, as well as, sessions that advancing issues outnumbered declining issues by a 2 to 1 and 3 to 1 margin. The results of the tests left no ambiguity, traditional wisdom is completely wrong. Here is what was found out...........

 

[professor_frink]

This Market Breadth theory is well entrenched in the minds of most financial professionals as well as retail investors. A cursory internet search reveals that it is by far the dominant idea regarding Market Breadth.

We decided to take this well accepted theory, that seems to make perfect sense, and put it through vigorous, statistically valid tests. What we discovered is quite surprising. Not only is the accepted idea wrong, the opposite proved to be true. An 8 year period was tested revealing that the traditional wisdom could not be more wrong. We tested advancing issues being greater than declining issues for multiple days in a row, as well as, sessions that advancing issues outnumbered declining issues by a 2 to 1 and 3 to 1 margin. The results of the tests left no ambiguity, traditional wisdom is completely wrong. Here is what was found out...........

from the blog:

The results of the tests left no ambiguity, traditional wisdom is completely wrong. Here is what was found out.

Consecutive days of declining issues greater than advancing issues on the NYSE has led to higher prices short term. We considered one week to be short term for purposes of the testing. The testing also discovered that significant underperformance occurs when advancing issues outnumber declining issues when the market is trading under its 200 day Simple Moving Average. Another finding that flies in the face of conventional wisdom is that weak breadth days outperform strong breadth days over the short term.

What was the testing period surf? Did you find that the results became more pronounced around the turn of the century when the indices became more mean reverting?