This Chart Helps You Keep Tabs on the Market's "Health"

It's hard to say anything bad about a market that keeps making serial new highs.

But there is a tragedy unfolding right now...

It's the sheer number of people hanging back on the sidelines, just waiting for something bad to happen to the markets.

It's not just the permabears, either - those guys never participate in rallies. And it's not institutional investors managing monstrous amounts of money, who have to start moving months in advance.

Rather, it's the regular people who feel like the market's "just too high," or stocks are "too expensive," or that they "don't want to get in at the top."

For whatever reason, those unfortunate investors are missing out, needlessly, on one of the greatest rallies of all time.

Here's one picture I'd show anyone on the sidelines who's anxious about getting in right now...

A Two-Second Market Health Test

There aren't many surprises a market can throw at you. If you know where to look, you can see just about everything coming well in advance - especially declines.

And so, we go back to check up on market health to see if we notice any signs that markets are showing advanced signals of a significant drop.

The first place I normally look is at "market breadth." That's simply a measure of how many stocks are participating in an up move.

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So the question becomes, as we make new all-time highs, are lots of stocks pulling on the oars? Or are we seeing just a few leading the way?

My favorite tool for answering this big question is the cumulative advance-decline line.

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The daily advance-decline line shows how many stocks on the New York Stock Exchange (NYSE) are higher than they were yesterday.

The number of stocks that have gained on the day are tallied up, and the number of NYSE stocks that are down versus yesterday are subtracted.

That total number gives us the advance-decline reading, or "breadth," for the day.

If we then keep a running summation of that number, we get a number called the cumulative advance-decline line.

With the market driving up to yet another new all-time high yesterday, here's how that chart looks:

how healthy is the market

That tells you immediately: Lots of U.S. stocks are strong and receiving broad participation.

So far, so good. What about global markets? Problems there?

Well, let's have a look.

The short answer is a resounding "No!"

In fact, it's quite the opposite. Over the past two months - and indeed, longer - the big non-U.S. markets have actually been outperforming our outperformance.

Here's a chart that shows the United States, China, Europe, and Latin America over the last 40 trading days:

how can I check market breadth

All are up more than 5% over the last 40 trading days (ending Friday, Oct. 13), with China far outperforming the other closely grouped markets.

There's proof positive that markets are in great shape all over the world. There's just no excuse not to be invested right now.

If you're among those on the sidelines right now, the best thing you can do for yourself is to jump in with both feet right now.

But, if you must, if just can't bring yourself to buy at these prices, wait for a small pullback like the one we've had last week - another pullback from here, a little "breather," would not be out of character for this market.

The Bottom Line: You have to be invested right now, because if you're not, you're missing out on a bull market - bull market gains, specifically - for the ages.

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About the Author

D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.

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