One of the questions I get all the time is some version of this:
“JC, how did you know that consolidation would resolve higher?”
Or “JC, how did you know that breakout would fail?”
Sometimes people will point out a divergence or a specific pattern and ask why I interpreted it differently.
And the truth is, most of the explanations people give are perfectly reasonable.
“But momentum was diverging.”
“But sentiment was extreme.”
“But the pattern looked like a top.”
Sure. All fair.
But the way I look at markets is a lot bigger than one chart, one pattern, or one divergence.
It’s about context.
Years ago, one of the investors in my hedge fund pointed something out to me that I hadn’t really thought about before. He said what I was doing was essentially building a breadth indicator in my head.
He called it the “JC Breadth Indicator.”
I later added “Stock Market” in the middle so people wouldn’t think it had anything to do with my breath. Nobody wants that.
So, formally, it’s the JC Stock Market Breadth Indicator.
And here’s what that really means.
Every week I go through thousands of charts.
Not dozens. Not a couple hundred. Thousands.
Global stock indexes. Every major sector and subsector in the U.S. Large caps, mid caps, small caps.
All the S&P 500 stocks. The Dow 30 and the 20 Dow Transports.
ADRs listed in the U.S. International Indexes. Factor and thematic index ETFs. Crypto.
Basically, anything liquid enough to matter.
When you do this long enough, something interesting happens.
You stop seeing individual charts. You start seeing themes.
Instead of asking, “What’s this one stock doing?” you start asking a much more important question:
Are there more good charts than bad charts?
That’s it.
That’s the indicator.
It sounds almost too simple.
But it’s amazing how few people actually take the time to do the work required to answer that question honestly.
The Weight of the Evidence
When you hear me say I like a particular sector, industry, or market, it’s never because of one chart pattern.
It’s because the weight of the evidence points in that direction.
Take energy as a recent example.
For most of the past 15 to 20 years, energy stocks have been dead money. While the rest of the market was making people rich, this group went nowhere.
So by the time the opportunity showed up, nobody cared anymore. Most investors had already written the entire sector off.
But when you actually went through the charts, the story looked very different.
First, you had the big picture. Energy as a sector had been building one of the largest bases anywhere in the market — nearly two decades of sideways action.
Around here we like to say, “The bigger the base, the higher in space.”
Then you started seeing the internal evidence.
Oil services stocks were quietly breaking out.
International energy stocks were already pushing to new highs.
Relative strength for the sector was improving after years of underperformance.
And then you had the bellwethers.
Names like Exxon Mobil (XOM, the largest and most important stock in the group, were building massive bases and beginning to resolve higher.
When the biggest stock in a sector starts breaking out, that’s usually not random.
That’s the market telling you something.
So the bullish case for energy wasn’t about one chart pattern in one ETF. It was about a broad set of signals all pointing in the same direction.
A massive multidecade base.
Strength across the industry groups.
Leadership from the largest companies in the sector.
And improving participation globally.
When you see that many things lining up at once, you stop asking if something is happening.
You start asking how big the move could be.
The Work Matters
Here’s the part people don’t like hearing.
You can’t shortcut this. You actually have to do the work.
I love ripping through charts. I’ll throw on some music and go through hundreds, sometimes thousands, in a single sitting.
If you look at enough charts across enough countries and sectors, the themes almost jump off the page.
Sometimes everything is breaking down at the same time.
Other times, you see breakouts everywhere.
You see bases resolving higher. You see new highs expanding. You see leadership broadening.
When that happens, the message is usually pretty clear.
Why You Can’t Quantify It
People often ask if I’ve tried to quantify this process.
In other words, what makes a chart “good”? What makes a chart “bad”?
Can the JC Breadth Indicator be turned into a formula?
I’ve thought about it a lot. And the answer I’ve come to is “no.”
Markets evolve. Every cycle is different. Correlations shift. Leadership rotates.
Entire asset classes behave differently depending on the environment.
Trying to quantify something like this would mean forcing today’s market to behave like yesterday’s.
That’s not how markets work.
There are too many unknown unknowns.
So instead of trying to force the market into a model, I’d rather just listen to what the market is telling me.
And the only way to do that is by looking at a lot of charts.
Build Your Own Breadth Indicator
You don’t need my exact list.
Mine is pushing 3,000 charts at this point. And that’s only because I’ve trimmed it down.
But I challenge anyone reading this to build their own list and go through it regularly.
Pick a few hundred stocks. Add the major indexes. Add sectors and industries. Add a few international markets.
Include the bellwethers, all 30 stocks in the Dow Jones Industrial Average and some of the biggest ADRs.
Then go through them every week.
Over time, you’ll start to notice the same thing I did.
The market starts to tell a story.
And when that story becomes obvious, the opportunities usually follow.
The Bottom Line
At the end of the day, it’s not about one chart pattern. It’s about how that pattern fits within the bigger picture.
This process has taken me decades to develop, and it continues to evolve.
Because markets evolve.
I’m not interested in defending some rigid system just because it worked once.
I’d rather stay flexible and adapt to what the market is actually doing.
After all, the goal isn’t to be right.
The goal is to make money.
There’s a big difference.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs