Market Breadth

I've been learning more of what the Warden Brothers have to offer with their charting software. They put together some great tools and I highly recommend them. The above chart (1988-1995) shows the S&P 500 along with the percentage of stocks in the index that are making new 52 week highs (green), new 52-week lows (red), and the Advance-decline line (yellow). Check out the quick analysis. Without looking at the date, would you buy this index?

The chart below should answer that question. It just goes to show that market indicators can be very tricky. I do think that the red plot has some use though. It looks like big spikes down tend to indicate a bounce up is just around the corner. It is also interesting to note the advance-decline drop before the top in 2000.