The Dow Jones Industrial Average and the S&P 500 aren’t the only measures of a bull market, Cramer said Wednesday. In fact, investors should look for more metrics than just those. Breadth is important if they want an accurate picture of stocks at any given moment.
Breadth is a measure of the number of stocks going up versus those that are going down. Good breadth means there are many stocks in many different sectors moving higher. Bad breadth, of course, is the opposite: More stocks are declining, and few sectors are rallying.
Now averages can move higher even on narrow breadth, which means, “Your bull is weaker than it might appear,” Cramer said. At the same time, averages can decline despite having good breadth, because of a larger percentage decline in one or two key areas. So you can see why investors shouldn’t rely on the averages themselves to gauge a rally. They should look to breadth instead, which is a truth test of sorts. The more breadth there is, the more legitimate the bull market.