Breadth: Interpretation of Market Conditions
- Lester Davids
- 20 minutes ago
- 5 min read
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Interpretation of Market Conditions:
The readings from the week ending April 4th indicated a market where a large number of stocks were potentially presenting near-term buying opportunities due to oversold conditions. The lack of overbought readings suggested limited immediate selling pressure from overextended stocks.
However, the readings for the week ending April 17th paint a different picture. The shift towards a majority of neutral and strong readings, along with the emergence of overbought and approaching overbought conditions in some constituents, suggests a decrease in potential near-term buying opportunities. Instead, the presence of overbought readings indicates that some stocks might be approaching levels where selling pressure could increase. The significant reduction in oversold stocks implies that the prior downward momentum has largely subsided.
The market breadth readings for the JSE Mid and Large Caps show a notable shift when comparing the week ending April 4th to the week ending April 17th.
Week Ending Thursday 04 April:
The majority of constituents, numbering 40 out of 98, were in the oversold category.
A further 23 constituents showed high bearish momentum / approaching oversold.
This suggests that at the end of the week of April 4th, a significant portion of the JSE Mid and Large Caps index was experiencing strong downward pressure and could be nearing a potential buying opportunity in the short term.
Only 4 constituents were in the strong category, with none indicating overbought conditions.
Week Ending Thursday 17 April:
The landscape has changed considerably, with the largest group, 46 out of 100 constituents, now in the neutral category.
A substantial 39 constituents are now showing strong readings.
Notably, 9 constituents are exhibiting high bullish momentum / approaching overbought, and 1 constituent is overbought.
The number of constituents in the oversold and high bearish momentum categories has dropped to 0.
Why is the breadth for 04 April used as a reference? The date highlights the Friday into the market recent market low which coincided with the deeply oversold condition across the board.
Below: Breadth data as of the close on Thursday 17 April 2025.
Previous Post (13 April): JSE Market Breadth: Considerable Recovery
Comparing this week's readings to last week's, we observe a significant shift in market conditions. The number of constituents in oversold territory has dropped dramatically from 40 to 0. Similarly, those with high bearish momentum approaching oversold have decreased substantially.
Conversely, there is a notable increase in the number of constituents in the neutral and strong categories. Additionally, we now see constituents in the high bullish momentum/approaching overbought and overbought zones, which were absent last week.
Last Week's Readings (Total Constituents: 98):
Oversold: 40 constituents
High Bearish Momentum / Approaching Oversold: 23 constituents
Weak: 19 constituents
Neutral: 12 constituents
Strong: 4 constituents
High Bullish Momentum / Approaching Overbought: 0 constituents
Overbought: 0 constituents
Last week's readings indicated a significantly bearish market sentiment. A large majority of the constituents (40 + 23 = 63) were in oversold or approaching oversold territory, suggesting a potential near-term buying opportunity as these stocks might be due for a rebound. The absence of stocks in overbought conditions further supported this idea for a potential bounce.
This Week's Readings (Total Constituents: 100):
Oversold: 0 constituents
High Bearish Momentum / Approaching Oversold: 2 constituents
Weak: 30 constituents
Neutral: 47 constituents
Strong: 14 constituents
High Bullish Momentum / Approaching Overbought: 5 constituents
Overbought: 2 constituents
Interpretation of Market Conditions:
The shift in readings from last week to this week suggests a considerable recovery from the bearish sentiment. The decrease in oversold and near-oversold constituents indicates that the potential buying opportunity observed last week might have played out, leading to upward price movements.
The increased number of constituents in the strong and approaching overbought/overbought categories now points towards a potential selling opportunity in the near term for those specific stocks, as they might be trading at levels above their intrinsic value and could be due for a correction. However, it's important to note that the largest portion of the market is now in a neutral state, suggesting a period of consolidation or indecision following the prior week's strong bearishness.
In summary, the market has transitioned from a state heavily skewed towards a potential near-term buying opportunity to a more balanced condition with a significant neutral component and the emergence of potential selling opportunities in a smaller segment of the market.
Previous Post (Monday 07 April): Breadth Data Helps Assess Reward-To-Risk (Oversold Goes From...)
Over the weekend we published the end of week breadth data, highlighted the overwhelming number of shares which were trading in oversold territory. The data covers all shares with a market cap above R10bn. As you may have read, out of the 98, 40 was oversold, which is a rarity! As per our comment, the interpretation of the data was as follows: "The data suggests that the market is heavily skewed towards oversold conditions. This widespread oversold reading may point towards a potential near-term buying opportunity as the large number of stocks at these levels could be poised for a rebound. However, the lack of strong bullish momentum and the prevalence of bearish readings indicates that any potential recovery may be short-lived or met with resistance. In essence, the market is currently overwhelmingly bearish, with a possible short-term opportunity arising from the oversold conditions, but caution is advised due to the overall weakness."
Today (Monday, 07 April) saw several shares trade lower early in the session, which was followed by strong rebounds on an intraday basis. As of today's close, only 19 shares trade in oversold territory versus the 40 after last week Friday's close. There were pockets to play in which created cash-generating opportunities for traders who took advantage of the oversold conditions. Well done if you made some money today!
Previous Post (Saturday, 05 April at 06h20): JSE Market Breadth: After The Close
Market Summary:
The JSE Mid & Large Caps market, as indicated by the short-term trend readings of its 98 constituents, exhibits a predominantly bearish sentiment. A significant portion of the market, 40 constituents, are currently classified as oversold, while another 23 are experiencing high bearish momentum and approaching oversold territory. This means that a substantial majority (63 out of 98) of the stocks are showing signs of weakness and potential for a near-term bounce.
Conversely, there are no stocks in the overbought or high bullish momentum categories, and only 4 are considered to be in a strong uptrend. A further 12 stocks are in a neutral position, and 19 are classified as weak.
Interpretation:
The data suggests that the market is heavily skewed towards oversold conditions. This widespread oversold reading may point towards a potential near-term buying opportunity as the large number of stocks at these levels could be poised for a rebound. However, the lack of strong bullish momentum and the prevalence of bearish readings indicates that any potential recovery may be short-lived or met with resistance.
In essence, the market is currently overwhelmingly bearish, with a possible short-term opportunity arising from the oversold conditions, but caution is advised due to the overall weakness.
Lester Davids
Analyst: Unum Capital
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