What Is a Technically Weak Market?

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

Typically, technically weak markets are considered to be bearish markets, in which the market shows declining trading volume and prices.

Key Takeaways

  • A technically weak market reflects the fragile signals or negative data points from money flow or technical analysis that contribute to the overall fragility of the market.
  • For example, a market in which increasing average trading volumes accompany decreasing average prices, denoting negative money flow, can be considered a technically weak market.
  • If the advance/decline (A/D) line is negatively sloped and the market is trending downwards, the market is said to be technically weak.
  • When it comes to visual indicators for detecting technically weak markets, the average investor can look at if a market is trading below moving average lines, whether 50-, 100-, or 200-day varieties.

How Technically Weak Markets Work

For example, a market in which increasing average trading volumes accompany decreasing average prices, denoting negative money flow, can be considered a technically weak market. In technically weak markets, bearish activity in the market in which prices continue to decline 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. In contrast, higher prices with higher trading volume signal a bullish, strong market.

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 downward, 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. Based on the way that the Arms Index is calculated, a value of greater than 1.0 is indicative of flagging market activity.

When it comes to visual indicators for detecting technically weak markets, the average investor can also look at moving average lines, whether of the 50-, 100-, or 200-day varieties. The average investor can see where a current market line is relative to the moving average lines. At a glance, a market that is trading below these lines is considered to be in a weak technical 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.

The opposite of a technically weak market is a technically strong market, which looks at similar indicators as the ones discussed such as advance/decline lines, the Arms Index, and moving averages.