As with most technical indicators, the traditional stock market advance-decline line works at tops and at bottoms. Corrections and reversals work equally well. The problem is that there is not always a divergence. The advance-decline can only point out unusual conditions but it cannot categorize them by length and severity. Therefore, the advance-decline line takes its place in the trader s toolbox as only one part of a technical team.
Market breadth is a key indicator of the overall health of the market.
If only a few large stocks are rallying, it will boost the major averages, giving the impression that the market is very strong. However, if the majority of the lesser-known stocks are falling at the same time, then the market will soon be heading for a decline in the very near term.