What Is Heavy?
Heavy is a description of a market that is demonstrating difficulty in advancing and displaying a tendency to decline. In other words, rising prices are facing strong headwinds or heaviness.
A heavy market may be a manifestation of investor uncertainty about near-term direction and a sign that the market is topping out. It may also be characterized by a shortage of buyers, many of whom may prefer to stay on the sidelines until the uncertainty abates. Such a market is sometimes also referred to as a top-heavy market.
Top-heavy may also refer to a portfolio or market index that is very concentrated in very large stocks with high market capitalizations, known as mega caps. Such an index or portfolio may thus be most sensitive to price changes in only a handful of holdings.
- A heavy, or top-heavy, market is one that is meeting a great deal of resistance when it tries to rise higher in price.
- As a result, a market that is heavy may trade sideways for a while or trend downwards.
- An index that is top-heavy may have large concentrations in very large market-cap stocks.
A heavy market could find itself vulnerable to toppling over if economic conditions and/or uncertainty worsens. A situation like this could exacerbate the imbalance between buyers and sellers of stocks.
As such, a heavy market could be interpreted as a signal of, or precursor to, a potentially steep decline in the near- to medium-term. Clues of a heavy market may exist in aggregate numbers (e.g., bid-ask volumes of major indices), but often "heavy" is something that experienced traders can feel. It's more of an intuition rather than a quantification. A group of stocks or a market that fails to trade higher on multiple occasions can be said to be heavy.
Market direction can also change quickly with the release of supportive economic data, positive earnings surprises of bellwether companies, or reinvigorated investor sentiment. Thus, what may feel heavy to traders, turning them cautious, could reverse into a new leg up in a bull market.
Investors who pick up on the sense that the market is heavy may act to lock in gains, hedge long positions, or even short the market if they are bolder. Those advocating that investors stay fully invested at all times simply ignore signs of heaviness in the market. Since market timing is notoriously difficult, financial planners typically advise that the average saver/investor keep adding funds to their equity holdings, no matter the perceived "weight" of the market.
Example of a Heavy Market
Let's say the S&P 500 is trading at a level near 2,500, and over the next few weeks, the index trends lower day after day. By looking at the chart of the index, there is the appearance of a heavy market because the prices are failing to bounce.
Investors looking to buy shares at a discount will welcome a heavy market. This allows the investor to own shares at a lower price, with more upside potential than if those stocks were purchased at a higher price.
What Is a Top-Heavy Market?
A top-heavy market occurs when just a handful of companies account for a relatively large percent of a given index's market capitalization. A top-heavy market is particularly vulnerable to idiosyncratic risk; that is, the risk that is endemic to a specific group of assets.
What Is the Difference Between a Heavy Market and a Bear Market?
A heavy market has a tendency to decline and has difficulty advancing. A bear market, meanwhile, experiences prolonged declines. Typically, a bear market occurs when prices fall 20% or more from recent highs.
Is the S&P 500 a Top-Heavy Market?
As of July 2021, the S&P 500 is both top-heavy and tech-heavy.
The combined market valuation of just five big-tech companies (Apple, Microsoft, Amazon, Alphabet, and Facebook) comprise more than 20% of the S&P 500.