What Are Market Indicators?
Let me explain market indicators directly: they're quantitative tools that interpret stock or financial index data to forecast market moves. As a subset of technical indicators, they typically involve formulas and ratios, and I use them to guide my investment and trading decisions.
Key Takeaways
You should know that market indicators are quantitative and aim to interpret stock or index data for predicting market shifts. They're part of technical indicators, made up of formulas and ratios. Some popular ones include market breadth, market sentiment, advance-decline, and moving averages.
Understanding Market Indicators
Market indicators work much like technical indicators by applying statistical formulas to data series to reach conclusions, but they pull from multiple securities instead of just one. You'll often see them on separate charts, not overlaid on price charts.
Most stock market indicators analyze companies hitting new highs versus new lows—this is market breadth, showing the overall trend direction.
There are two main types you need to consider: Market breadth indicators compare stocks moving with a larger trend, like the advance-decline line tracking advancing versus declining stocks. Market sentiment indicators look at price and volume to gauge if investors are bullish or bearish, such as the put-call ratio comparing put to call options over a period.
An Example of Market Indicators
Take the NASDAQ Advance-Decline Issues index as an example—it's a visual representation of advancing versus declining issues, helping you see market breadth in action. (Note: Imagine a chart here showing the index trends over time.)
Popular Market Indicators
You'll find hundreds of market indicators for indexes like NYSE, NASDAQ, AMEX, TSX, TSX-V, and options exchanges worldwide.
Some of the Most Popular Market Indicators
- Advance-Decline Issues: This is the ratio of advancing to declining securities, useful for true sentiment beyond market-cap weighted indexes—examples include $NYAD and $NAAD.
- New Highs-New Lows: The ratio of new highs to lows; many highs signal a frothy market, while many lows suggest a bottom.
- McClellan Oscillator: It smooths market breadth with moving averages of highs and lows, ranging from +150 to -150 for easier interpretation.
- Moving Averages: These check the percentage of stocks above or below key averages like 50- and 200-day—examples are $NYA50, $NYA200, $NAA50, and $NAA200.
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