![\"SPX](\"\/campus\/wp-content\/uploads\/sites\/2\/2020\/08\/image-96.png\")
<\/figure>\n\n\n\nSource: Bloomberg<\/p>\n\n\n\n
But I highlight the most recent behavior in the second graph. We can see a notable decline in the breadth measures over the past few sessions:<\/p>\n\n\n\n Source: Bloomberg<\/p>\n\n\n\n Is this a meaningful trading signal? Not necessarily. Breadth can diverge from the broader indices for some time before a trend changes. Also, short-term lagging breadth measures can simply recover before any damage occurs to a longer term trend. But a divergence of this type highlights potential cracks underlying a market\u2019s solid-looking foundation.<\/p>\n\n\n\n We have discussed that the major indices, which are weighted by market capitalization, are increasingly dominated by a small group of top performing mega-capitalized stocks. The top five companies in the NASDAQ 100 (NDX) index make up about half of the index\u2019 weight, and those companies make up about a quarter of the weight of the S&P 500 (SPX). If those companies advance strongly enough, they can drag the indices along with them. Yet that exposes a vulnerability \u2013 what happens if sentiment turns negative? If those stocks fall out of favor, they expose the indices to a disproportionate decline. That is the crux of the market\u2019s focus on breadth. When gains are well distributed throughout a broad range of solidly performing stocks, markets can more easily weather sentiment changes in a group of market leading stocks.<\/p>\n\n\n\n This combination of narrow leadership and shrinking breadth raises the risk level in equity markets. The rewards of investing in the leading stocks have been unmistakable. Yet their high valuation and market concentration mean that the market\u2019s foundation is increasingly reliant on a narrow group of market leaders. This increases the risk to indices as a whole in a subtle manner. As always, investors need to assess whether they are properly exposed to that level of concentration.<\/p>\n","protected":false},"excerpt":{"rendered":" Today marks another monthly expiration. Traders need to keep a close eye on high volumes and open interests in options on key stocks and ETFs.<\/p>\n","protected":false},"author":4,"featured_media":47189,"comment_status":"closed","ping_status":"open","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[14,14700,18,6,8,9,22,26,3],"tags":[155,558,2782,262,156],"contributors-categories":[13576],"class_list":{"0":"post-57082","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-etfs","8":"category-ibkr-market-insights","9":"category-macro","10":"category-north-america","11":"category-region","12":"category-securities","13":"category-stocks","14":"category-text-articles","15":"category-traders-insight","16":"tag-aapl","17":"tag-ndx","18":"tag-qqq","19":"tag-spy","20":"tag-tsla","21":"contributors-categories-interactive-brokers"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\n![\"SPX](\"\/campus\/wp-content\/uploads\/sites\/2\/2020\/08\/image-97.png\")
<\/figure>\n\n\n\n