What are 'Market Indicators'

Market indicators are a subset of technical indicators used to predict the direction of major financial indexes or groups of securities. Most market indicators are created by analyzing the number of companies that have reached new highs relative to the number that created new lows, known as market breadth, since it shows where the overall trend is headed.

BREAKING DOWN 'Market Indicators'

Market indicators are similar to technical indicators in that both apply a statistical formula to a series of data points to draw a conclusion. The difference is that market indicators use data points from multiple securities rather than just a single security. Often times, market indicators are plotted on a separate chart rather than appearing above or below an index price chart.

The two most common types of market indicators are:

  • Market Breadth indicators compare the number of stocks moving in the same direction as a larger trend. For example, the Advance-Decline Line looks at the number of advancing stocks versus the number of declining stocks.
  • Market Sentiment indicators compare price and volume to determine whether investors are bullish or bearish on the overall market. For example, the Put Call Ratio looks at the number of put options versus call options during a given period.

Here's an example of the Nasdaq Advance-Decline Issues index:

Example of an advance-decline index.

Popular Market Indicators

There are hundreds of different market indicators covering various indexes in the United States and around the world, including the NYSE, NASDAQ, AMEX, TSX, TSX-V, and various options exchanges.

Some of the most popular market indicators include:

  • Advance-Decline Issues - The ratio of advancing to declining securities at any given point in time. Since the indexes are weighted by market capitalization, this is helpful in determining true sentiment rather than just looking at the performance of the largest companies in a given index. Examples: $NYAD and $NAAD.
  • New Highs-New Lows - The ratio of new highs to new lows at any given point in time. When there are many new highs, it's a sign that the market may be getting frothy, while many new lows suggest that a market may be bottoming out.
  • McClellan Oscillator - This oscillator uses a moving average of highs and lows to help smooth out market breadth and make it easier to interpret rather than looking at choppy charts showing the raw numbers. It ranges from +150 to -150.
  • Moving Averages - Many market indicators look at the percentage of stocks above or below key moving averages, such as the 50- and 200-day moving averages. Examples: $NYA50, $NYA200, $NAA50, and $NAA200.
RELATED TERMS
  1. Advances And Declines

    Advances and declines refers to the number of stocks that closed ...
  2. Advance/Decline Index

    The Advance/Decline Index is a market breadth indicator that ...
  3. Toraku Index

    A Toraku Index is a technical indicator that compares the number ...
  4. Market Breadth

    Market breadth is a technique used in technical analysis that ...
  5. Advance/Decline Ratio- ADR

    The advance decline ratio measures the level of securities rising ...
  6. Sentiment Indicator

    Sentiment indicator refers to a graphical or numerical indicator ...
Related Articles
  1. Trading

    Market Breadth: A Directory Of Internal Indicators

    Discover the indicators that measure the force of the bulls and bears, telling you what a simple price chart cannot.
  2. Trading

    3 Key Signs Of A Market Top

    Learn the best ways to foresee market corrections and how to profit from them.
  3. Trading

    Using Technical Indicators to Develop Trading Strategies

    There is no perfect investment strategy that will guarantee success, but you can find indicators and strategies that will work best for your position.
  4. Trading

    The top technical indicators for options trading

    Option traders use a number of technical indicators, including the relative strength index, Bollinger bands, Intraday Momentum Index, and Money Flow Index.
  5. Investing

    CPI, Beige Book and Other Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  6. Investing

    Why the S&P 500 Is Healthier Than It Looks

    While some observers worry the advance of the S&P 500 is fragile, GS sees impressive market breadth.
RELATED FAQS
  1. What are leading, lagging and coincident indicators?

    Leading indicators move ahead of the economic cycle, coincident indicators move with the economy, and lagging indicators ... Read Answer >>
  2. What are the best technical indicators to complement the Stochastic Oscillator?

    Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement ... Read Answer >>
  3. What is the Volatility Ratio formula and how is it calculated?

    Understand what the volatility ratio indicator is, how it is calculated and the way this technical indicator is used by traders ... Read Answer >>
  4. What are the main differences between Moving Average Convergence Divergence (MACD) ...

    Learn the differences between the moving average convergence divergence (MACD) and the relative strength index (RSI), and ... Read Answer >>
  5. What are the best technical indicators that complement the Relative Strength Index ...

    Learn some of the best additional technical indicators that can be used along with the relative strength index to anticipate ... Read Answer >>
  6. How do I use Stochastic Oscillator to create a forex trading strategy?

    Learn about the stochastic oscillator and how to it is used to create an effective forex trade strategy, including how to ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center