The Market Health Gauge: Scoring Whether Breakouts Can Work Right Now

O'Neil put an M in CANSLIM for a reason: the best setup in the world fails in the wrong market. The Market Health gauge turns 'what kind of market is this?' into a number you can check in two seconds.

Three components, one score

The gauge is a 0–100 sum of three measurements, recomputed throughout the day:

The three regimes

• 70–100 · Risk-on. The tape supports breakouts — normal position sizing.
• 45–69 · Caution. Mixed tape — take only the best setups, size down, honor stops fast.
• Below 45 · Risk-off. Defensive — avoid new entries; breakouts fail in this tape. Protect open positions.

Lagging ingredients, early warnings

Be clear about what this is: every component is computed from data that already happened. Moving averages are the most lagging — their job is to stop you fighting a confirmed downtrend, not to predict one. But the other two components fire early in practice. Distribution days detect institutions selling into strength, before price breaks. And breadth degrades before cap-weighted indexes do, because the average stock rolls over first — and breakout signals come from average stocks, not from the index.

August 2026 made the case concretely: SPY's trend was perfect while the gauge sat in deep caution — QQQ below its 50-day, six distribution days, breadth softening. A trend-only view said all clear; the gauge said size down. The July signal results sided with the gauge.

A day with the gauge, in practice

The workflow costs seconds. The colored pill sits next to the Signals header — green, amber, or red with the score — and one click opens the breakdown: each benchmark's trend spelled out in words, the distribution count with its per-index split, breadth with its week-versus-month direction. On a risk-on morning you scan the list normally. On a caution reading you raise your bar — perhaps only VCP-marked breakouts from RS-70+ leaders — and cut position size. On risk-off you mostly watch. The gauge never tells you what to buy; it calibrates how much conviction any buy deserves today. The same reading, with the same breakdown, is public on the Market Pulse page.

How to use it (and how not to)

The gauge is advisory context for position sizing, not an entry-exit oracle. It will stay in caution through healthy pullbacks, and it has no follow-through-day logic to call V-shaped bottoms early. Use it the way the checklist intends: setup quality first (a real base, a real leader), then let the regime decide how much risk that setup deserves — full size in risk-on, reduced in caution, standing aside in risk-off.

It's live on every dashboard page and on the free Market Pulse, with the component breakdown one click away.