Top Stock Market Indicators
Let’s face it, there is a ton of news regarding the plummeting stock market and the possibility of a recession in the U.S. Instead of sitting idly and waiting for stocks to recover, it might be a good idea to look at stock market indicators to give you a hint.
Stock market indicators are a form of technical analysis used by traders to forecast movements in the stock market. Technical analysis looks for stock price movements that may show patterns in the movements. The price movements that traders look for include momentum, changes in trading volume and man more.
Stock market indicators differ from traditional fundamental analysis in a few ways. Technical analysts (or chartists) try to predict future movements in the stock market based on patterns of past movements. And fundamental analysis take a different approach.
Fundamental analysis looks at the financial results of a stock or group of stocks to decide how much a share is worth. This approach tries to find stocks that worth more than their stock price. Hopefully, those stocks will rise to their intrinsic value over time. Instead of looking for patterns in in price movements, fundamental analysis uses metrics like P/E ratio and dividend yield.
Many times, stock market indicators are found using computers that sift through tons of data to find patterns. Let’s look at a few stock market indicators.
Stock Market Indicators to Watch
Stock market indicators use technical analysis to find patterns in stock market indexes. The idea is to forecast future movements in the stock market. Here are a few…
Market Breadth looks at the number of stocks reaching new highs and compares it to the number of stocks reaching new lows. The comparison looks at a specific time period. The Market Breadth stock market indicator creates a chart. On the chart is an advance/decline line in the middle of the rising stocks and the declining stocks.
In addition, Market Breadth uses market cap. Since most stock indexes are market cap weighted, Market Breadth uses the weighted average of each stock on the chart when forecasting stock market movements.
Moving averages finds the average price of a stock or stock market index of different time periods. For example, Moving Average may find the average price of a stock market index over 200 days, 100 days, 50 days, or even shorter time periods. The time periods are chosen by the user.
A chartist may use a longer period moving average for an index as a baseline. If a shorter period moving average moves above the longer moving average, it may show that the index has positive momentum. If that is the case, the index may keep rising.
Stock Market Indicator List
There is a mountain of stock price data that can be used for all the different stock market indicators. Therefore, there are also a mountain of stock market indicators available to traders to try forecast stocks or stock market indexes. Check out this stock market indicator list.
This stock market indicator is used to see if traders are bullish or bearish about a stock market index. For example, traders like to use options to take advantage of changes in index prices. They use a call option if they are bullish on an index and a put option if they are bearish. The market sentiment stock market indicator compares call and put options purchased by traders over a certain time period. Stock market sentiment also considers the volume of call and put options. For example, if the volume of call options is much higher than put options, it may show that traders are bullish on the index.
On-Balance Volume (OBV)
This stock market indicator also uses volume as a stock market indicator. It uses volume data to make a chart showing a line that can confirm a up or down trend. A rising OBV can show that a stock is moving up and vice versa. When the OBV line becomes useful is when the OBV line and the stock index price are going in opposite directions. For instance, if the OBV of a stock market is rising and the price is falling, it could mean that the index will change directions.
Two Indicators that Could Forecast the End of the Slump in Stocks
Head and Shoulders
A Head and Shoulders chart looks like, well a head and shoulders. If the chart of a stock market index price shows three peaks over a given time period where the middle peak is the tallest, it could be a candidate for a Head and Shoulders opportunity. Unfortunately, after the last shoulder is completed on the chart it would tell you that the stock market index should trend downward. On the other hand, an inverted Head and Shoulders chare is the exact opposite. It would look like someone standing on their head. In that case, the stock market indicator may keep rising when the final shoulder is completed.
Support Levels looks at those long-term prices that a stock market index. If a trader can find a level where the index has rarely fallen below they may have found a support level. A support level may mean that the index won’t go that low. Or that it won’t stay there for long and it may be a good time to buy. On the other hand, resistance levels are the exact opposite of support levels. If a trader can find the highest price of an index over a certain time period, it may mean the index won’t get that high or may not stay there for long. That may be a good time to sell or avoid buying.
About BJ Cook
BJ Cook is a long-time stock nerd. He has held several roles in the equity research world and earned the right to use the CFA designation in 2014. When he’s not writing for Investment U, you can find him searching for new investment ideas. Outside the investment community, BJ is a die-hard Cubs fan.