Many traders and investors in the equity markets will be familiar with the concept of index and sector breadth - take a group of stocks and track how many constituents within this group are rising or falling.
The theory is simple - breadth measures the "internal strength" of the group. A sustainable bull market must be supported by either rising (from oversold lows) or firm ( i.e. averaging above 50%) breadth.
Very weak breadth readings are typically unsustainable and are excellent entry points for counter-trend traders. Very strong breadth readings indicate overbought conditions, although these can be maintained for longer periods of time.
At Investors Intelligence, we track breadth data for the commodity market, both on an index, sector and "broad" group level. The chart below shows the breadth data for our broad commodity group.The indicator is constructed with our bullish% methodology.
Traders should be mindful that peaks above 85% have lead to significant periods of underperformance and/or pullbacks. Cases in point include July 2008 (crash), Oct 2009 (12 month range) and now (?).
Commodities breadth is updated daily on our website. For more information on the commodities service, please see http://www.investorsintelligence.com/x/commodities_hotline.html