The Market Internals Instrument

In order to better gauge the overall investing landscape, we capture and compute different measures of market breath (also called participation). This analysis reveals the underlying trends of the market which may be hard to spot by just looking at index-level performance. The main comparison that we are interested in is SPY versus a basket of Top 1000 stocks by transacted dollar volume.

Instruments are divided between breath and drawdown analysis. Drawdown analysis is especially useful in correction periods with high volatility. Putting the most recent decline in perspective is crucial in order to avoid costly emotional mistakes.

This kind of analysis is most useful on a discretionary basis, as it reveals certain nuances that help us better interpret our automatic strategies. You will likely see screenshots from this instrument accompany many of our articles.