DEFINITION of Technically Weak Market

Technically weak market reflects fragile signals or negative data points from money flow or technical analysis. Common indicators that can show whether a technically weak market exists include advance/decline line (A/D), Arms Index (TRIN) and moving averages.

BREAKING DOWN Technically Weak Market

As an example, a market in which increasing average trading volumes accompany decreasing average prices, denoting negative money flow, is considered a technically weak market. Bearish activity in the market can be expected to continue. In the same vein, when decreasing average trading volumes occur with increasing average prices, there is an indication that buying conviction is fading (by contrast, higher prices on higher volume is bullish).

The advance/decline line is a popular tool for gauging overall market internals. If the A/D line is negatively sloped and the market is trending downwards, the market is said to be technically weak. A related measure of market breadth, which shows the extent of participation of stocks in market rises, is the Arms Index. The way that this index is calculated, a value of greater than 1.0 is indicative of flagging market activity. More visual for the average investor are moving average lines, whether 50-, 100- or 200-day varieties. The average investor can see where a current market line is relative to the moving average lines. Simply, a market that is trading below these lines is considered to be in a weak state.

Technical analysts try to profit from trends in the prices of securities. They believe that historical pricing trends tend to repeat themselves, and by using price charts to identify these trends they can determine the best times to buy or sell to make a profit. When they spot a technically weak market for a security, a basket of securities or a broad index, they can express their bearishness in short positions.