What Are Market Indicators?
Market indicators are quantitative tools designed to interpret stock or financial index data to forecast market trends. As a subset of technical indicators, they often rely on complex formulas and ratios, guiding investors and traders in making calculated decisions.
Key Insights
- Market indicators are used to forecast market movements based on stock or index data.
- These indicators are part of technical analysis and generally consist of sophisticated formulas and ratios.
- Notable examples include Market Breadth, Market Sentiment, Advance-Decline Line, and Moving Averages.
Understanding Market Indicators
Both market indicators and technical indicators employ statistical formulas to derive conclusions. However, market indicators aggregate data from multiple securities instead of focusing on a single entity. They often get displayed on separate charts rather than directly on index price charts.
Most stock market indicators reveal market trends by evaluating the number of stocks that have reached new highs versus new lows—a measure known as market breadth.
Common Types of Market Indicators
- Market Breadth Indicators assess the number of stocks moving in line with the prevailing trend. For example, the Advance-Decline Line compares the number of advancing stocks relative to declining ones.
- Market Sentiment Indicators examine price and volume data to gauge whether the market sentiment is bullish or bearish. The Put Call Ratio, for instance, evaluates the proportion of put options to call options within a specific timeframe.
Popular Market Indicators
Many market indicators monitor various indexes across the globe such as the NYSE, NASDAQ, AMEX, TSX, TSX-V, and various options exchanges.
Some of the widely recognized market indicators include:
- Advance-Decline Issues: This ratio measures advancing to declining securities at a specific point in time, providing deeper sentiment insights than those based solely on market capitalization. Examples: $NYAD, $NAAD.
- New Highs-New Lows: This ratio shows new highs vs. new lows at any point. An abundance of new highs may indicate an overheated market, while numerous lows could suggest a market criteria for reversal trends.
- McClellan Oscillator: This tool uses moving averages to smooth out market breadth data for easier interpretation. Its range is generally between +150 and -150.
- Moving Averages: Market indicators often consider the percentage of stocks above or below important moving averages, like the 50- and 200-day moving averages. Examples: $NYA50, $NYA200, $NAA50, and $NAA200.
Related Terms: Market Breadth, Market Sentiment, Advance-Decline Line, Moving Averages.
