Section 3 - Chapter 6 - Market Internals

Section 3 - Chapter 6 - Market Internals - Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus Visit Site : www.learn.ptaindia.com and www.ptaindia.com

1. Chapter 6 – Market Internals Section 3 – Trend Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda Learning Objective Statements: Market Internals Introduction — What Are Market Internals? The Basics This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. How to Interpret Market Internals? 1 . Divergences Matter – If the major indexes are rising, but internals are weak (e.g., low advance-decline line), the rally might not be sustainable. 2. Extreme Readings Signal Reversals – A very low TICK index or high Put/Call Ratio suggests extreme fear, which could mean a bounce is near. 3. Use in Combination – No single indicator is perfect; use multiple internals together to confirm signals. 4. Watch Volume Flow – More up volume than down volume signals strong buying, while heavy down volume suggests selling pressure. 5. Sentiment as a Contrarian Indicator – High fear (VIX spike) or excessive put buying can signal a bottom is near. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

4. Market Internals This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Market Internal What It Measures How to Interpret Advance-Decline Line (A/D) Number of advancing stocks vs. declining stocks Uptrend = Broad participation Downtrend = Weak market Advance-Decline Ratio (ADR) Ratio of advancing issues to declining issues ADR > 1 = Bullish ADR < 1 = Bearish Up/Down Volume Volume in rising stocks vs. volume in falling stocks More up volume = Bullish More down volume = Bearish Tick Index (TICK) Net number of stocks trading at upticks vs. downticks Extreme TICK (> +1000 or < -1000) = Reversal Possible TRIN (Arms Index) Breadth and volume balance (A/D volume vs. A/D issues) TRIN < 1 = Bullish TRIN > 1 = Bearish Put/Call Ratio (PCR) Sentiment via options activity High PCR = Bearish extreme (contrarian bullish) Low PCR = Bullish extreme (contrarian bearish) VIX (Volatility Index) Market fear & uncertainty Rising VIX = High fear (bearish) Falling VIX = Low fear (bullish) New Highs vs. New Lows Stocks making new 52-week highs vs. lows More new highs = Bullish More new lows = Bearish NYSE/Nasdaq McClellan Oscillator Market breadth momentum Above zero = Bullish Below zero = Bearish

5. Market Internals This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

6. Market Internals

7. 📌 Breadth & Leadership 📑 Key Facts About Market Breadth & Leadership • Market breadth measures the participation of stocks in a market move, helping to confirm trends or signal reversals. • Leadership refers to which sectors, stocks, or asset classes are driving the market's performance. • Strong breadth and clear leadership indicate a healthy market rally, while weak breadth and lack of leadership can signal a fragile or unsustainable move. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

8. 📌 Breadth & Leadership Indicator What It Measures How to Interpret Advance-Decline Line (A/D) Net advancing vs. declining stocks Rising A/D = Strong rally Falling A/D = Weak rally Advance-Decline Ratio (ADR) Number of advancing stocks divided by declining stocks ADR > 1 = Bullish ADR < 1 = Bearish Up/Down Volume Volume in rising stocks vs. volume in falling stocks More up volume = Bullish More down volume = Bearish McClellan Oscillator Market breadth momentum Above zero = Bullish Below zero = Bearish McClellan Summation Index Longer-term breadth trend Rising = Bullish Falling = Bearish New Highs vs. New Lows Number of stocks making new highs vs. new lows More highs = Bullish More lows = Bearish Percentage of Stocks Above 50/200 MA How many stocks are above key moving averages > 50% = Healthy < 50% = Weak Sector Leadership Which sectors are outperforming Growth sectors leading = Bullish Defensive sectors leading = Caution

9. 📌 Breadth & Leadership 📢 How to Interpret Breadth & Leadership? 1. Confirm Market Trends – A strong rally should be accompanied by rising A/D lines, strong up volume, and many stocks above key MAs. 2. Watch for Divergences – If the market is hitting new highs, but breadth is weakening (e.g., fewer advancing stocks), a pullback may be coming. 3. Sector Leadership Matters o Bullish: Tech, Consumer Discretionary, Financials, Industrials leading 🚀 o Bearish: Utilities, Staples, Healthcare leading (defensive positioning) 🛑 4. Rotation Signals Changing Trends – Money rotating from growth to defensive sectors can warn of a market top, while rotation into cyclical stocks suggests economic optimism. 5. Breadth Thrusts Are Powerful – When a large percentage of stocks suddenly surge above their moving averages, it often signals a strong rally ahead. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

10. Market Breadth 📑 Key Facts About Market Breadth • Market breadth measures how many stocks are participating in a market move, helping confirm the strength or weakness of a trend. • Strong breadth suggests broad participation, making rallies more sustainable. Weak breadth means fewer stocks are driving the market, increasing the risk of a reversal. • Breadth is often used as a leading indicator to detect potential turning points before they appear in major indexes. This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

11. Market Breadth This Content is Copyright Reserved Rights Copyright 2025@PTAIndia Indicator What It Measures How to Interpret Advance-Decline Line (A/D) Cumulative net advancing vs. declining stocks Rising A/D = Bullish Falling A/D = Bearish Advance-Decline Ratio (ADR) Ratio of advancing stocks to declining stocks ADR > 1 = Bullish ADR < 1 = Bearish Up/Down Volume Volume in rising stocks vs. volume in falling stocks More up volume = Bullish More down volume = Bearish McClellan Oscillator Short-term breadth momentum Above zero = Bullish Below zero = Bearish McClellan Summation Index Longer-term breadth trend Rising = Bullish Falling = Bearish New Highs vs. New Lows Number of stocks making new highs vs. new lows More highs = Bullish More lows = Bearish Percentage of Stocks Above 50/200 MA How many stocks are above key moving averages > 50% = Healthy < 50% = Weak NYSE TICK Index Net stocks trading on upticks vs. downticks TICK > +1000 = Overbought TICK < -1000 = Oversold Cumulative Volume Index (CVI) Measures total up/down volume over time Rising CVI = Bullish trend Falling CVI = Bearish trend

12. How to Interpret Market Breadth? 1 . Confirm Market Trends – If the market is rising, but the A/D line is flat or falling, it signals weakening participation and a potential reversal. 2. Divergences Are Key – If major indexes hit new highs but breadth indicators lag (e.g., fewer advancing stocks), the rally might not be sustainable. 3. Sector Breadth Matters – If only a few sectors are rising while others lag, the market may be fragile. Strong leadership across sectors is healthier. 4. Look for Breadth Thrusts – A sudden surge in stocks above their moving averages (>70%) is a bullish signal and can indicate the start of a strong rally. 5. Use With Other Indicators – Combine breadth with price action, volume, and volatility for more accurate signals This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

13. Chapter 1 – Classic Chart Patterns Next Section 4 – Chart Pattern Analysis Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia