Market Indicators

Are you tired of losing money in the market? Are you searching for the breakthrough formula or the Holy Grail of the stock market? Would you like to have the same competitive edge as some of the most successful traders and investors on Wall Street? You'd never guess how simple but powerful the answer is. The only intelligent way to approach the market is simply to watch what the so called "Smart Money" is doing and you can eliminate much of the stress by calmly following what the pros do. Almost everyone has heard of "Smart Money", "Dumb Money" and the so called "Crowd", and that is exactly what our indicators are all about. Just ask yourself these questions: Would you be a buyer if you see that the public and the odd-lot investors (dumb money) go on a buying spree while NYSE specialists and members (smart money) are heavily short at the same time? Do you know when to part company with the crowd and take profits? The key is knowing what the smart guys are doing and nothing else compares to to our Smart Money Flow Index, the closely guarded secret of the Wall Street pros until now. This magnificent indicator has called every major top and bottom since we are online.

 

Content of Market Indicators

Market Indicators, Market Indices, Market Index, Trin, Arms Index, VIX, Volatility Index, High Low Index, Investor Sentiment, Large Block Index Oscillator, NYSE Member Trading, NYSE Short Interest Ratio, Traders Short Sales, Specialists Public Short Sales, Trend Index, Odd-Lot Short Sales Daily

High-Low Index

This indicator is calculated by dividing the weekly number of highs and lows by the number of total issues traded. A 10-week moving average is applied to smooth out the swings. Like the advance-decline line, this indicator produces signals when it diverges from the action of the indices like the Dow Jones or the S&P 500. It is considered unhealthy for the market climate if the indices make new highs without many stocks reaching new highs at the same time. Historical chart also available!

The High-Low Ratio is the number of new highs divided by the numbers of new lows. Daily or weekly data may be used in the calculation. Readings do get sometimes very distorted if there are for instance about 600 new highs and 5 new lows or vice versa. A long-period moving average should therefore be applied. Historical chart also available!

High-Low Index Learn more about the High-Low Index

 

Investors Sentiment

The principles of Contrarian Investing hold that when the vast majority of people agree on anything, they are generally wrong. Otherwise no market would function because there is simply no minority with money enough to make a majority rich. A true contrarian, therefore, will first try to determine what the majority are doing and then will act in the opposite direction. Market Vane, AAII and Investors Intelligence are all contrary opinion indicators. Historical chart also available!

A unique feature of Market Vane's Bullish Consensus numbers is a weighting formula applied to the various market letters. More weight is given to letters with a larger following and less weight to those with fewer readers. Each week a poll of market letters is taken to determine the degree of bullishness or bearishness among futures professionals. The theory is that when a significant number of participants are bullish, they are already positioned on the long side and there is little potential buying power left. If most participants are bearish, selling pressure has reached an extreme and prices will reverse to the upside. Historical chart also available!

Thanks to the Internet, the American Association of Individual Investors (AAII) now polls its 170,000 members daily. Respondents indicate how they feel about the market's performance in the next six months. The chart below shows the number of bulls divided by the number of bears. A 10-week moving average is applied to smooth out the swings. High readings appear near market tops and low readings near bottoms. Historical chart also available!

Since 1963, Investors Intelligence has been compiling data on the opinions of publishers of market letters. They conduct a weekly poll of about 130 market newsletter writers and calculate the percentage who are bullish, bearish or expecting a short-term correction. The resulting index shows that the advisory services follow the trend of equity prices by becoming most bullish near market tops and most bearish around market bottoms. Historical chart also available!

Investors Sentiments Learn more about the Investors Sentiment

 

The Global Futures Large Block Index and Oscillator

The Global Futures Large Block Index is calculated from the number of upticks and downticks in large block transactions of single trades of 10 000 shares and over. An uptick is at a price higher than the last previous trade and initiated by a buyer. A downtick is at a price lower than the previous trade and initiated by a seller. The rationale behind the Large Block Index is quite simple. It measures activities and extremes in institutional sentiment and behavior. When the ratio of upticks rises to very high levels, it indicates that the institutions are buying heavily, reaching a fully invested position and therefore lowering their cash reserves.
Conversely, when the ratio of downticks rises to high levels, it indicates that the institutions are selling and are raising cash. When the institutional behavior reaches extremes, the market will turn in a contrary direction. This indicator has often signaled major reversals and has also prevented investors from plunging into the market at the wrong time.

Large Block Index and Oscillator Learn more about The Global Futures Large Block Index and Oscillator

 

The NYSE Member Trading Indicator

The NYSE Members Report is compiled by the SEC and issued about two weeks after the applicable date. This indicator is a useful tool to determine what the experts are doing. If specialists, floor traders and other members of the New York Stock Exchange are shorting heavily the market is usually ripe for a correction. On the other hand, if they are doing relatively little shorting it is most likely that the market has hit bottom, especially if public- and odd-lot short sales increase at the same time. Even if data are not quite up-to date, but they are nevertheless an excellent indicator of the prevailing sentiment in the market. We also use special moving averages to push the tops and bottoms forward an extra two weeks or so. Historical chart also available!

NYSE Member Trading Indicator Learn more about The NYSE Member Trading Indicator

 

The NYSE Short Interest Ratio

Every short seller anticipates a declining stock market. A profit is made if the stock is bought back at a lower price than when it was sold short. When a large amount of short selling activity is occurring, market participants obviously expect prices to head lower. The NYSE Short Interest Ratio is therefore a long-term contrary opinion sentiment indicator. It is calculated by dividing the monthly short interest figure released by the New York Stock Exchange by the average volume of trading per day. These numbers get sometimes distorted by arbitrage transactions but the Short Interest Ratio is nevertheless a good indicator of optimism or pessimism in the market. Short sellers are potential buyers sooner or later and represent a lot of buying power when they have to scramble for cover in a sudden market turn. Contrary indicators like ours require at least some degree of pessimism in order to function and therefore we watch this ratio very carefully. Historical chart also available!

NYSE Short Interest Ratio Learn more about The NYSE Short Interest Ratio

 

Odd-Lot/Floor Traders Short Sales Ratio

This index is calculated by dividing the weekly odd-lot short sales by the weekly short sales by floor traders for better comparison. Introduced by Wall Street Courier, the Odd -Lot Short/Floor Trader Short Ratio indicates the market sentiment of small investors who purchase less than 100 shares of a stock (odd-lot). Unlike the more sophisticated floor traders, the odd-lotters are usually wrong about the direction of the market and this indicator is therefore considered to be a contrary opinion sentiment indicator. Historical chart also available!

Odd-Lot/Floor Traders Short Sales Ratio Learn more about the Odd-Lot/Floor Traders Short Sales Ratio

 

Odd-Lot Short Sales Daily

Every short seller anticipates a declining stock market. A profit is made if the stock is bought back at a lower price than when it was sold short. Odd lot transactions are made by small investors who can not afford to buy or sell short a round lot of 100 shares of a stock. In the old days this indicator reflected the shorting activity of the smallest of the small guys who were usually dead wrong at bottoms and tops. Since the introduction of options however it has lost a lot of its value. Many traders also sell in 99-share lots in fast markets for a better execution of their orders. Year-end tax selling and subsequent reinvestment distort the odd lot statistics as well in the end of December and early in January every year. But the odd lot short sales are nevertheless an excellent indicator to measure prevailing negative sentiment in the market. The chart below shows the weekly odd-lot short sales in percentage of total volume on a 4-week moving average. Even if data are not quite up-to date, but they are nevertheless an excellent indicator of the prevailing sentiment in the market. The red line shows the weekly short sales of the more sophisticated and informed floor traders also on a 4-week moving average for comparison. Historical chart also available!

Odd-Lot Short Sales Daily Learn more about the Odd-Lot Short Sales Daily

 

Program Trading

Program trading is the purchase or sale of at least 15 different stocks with a total value of $1 million or more. Stock-index arbitrage is defined as the sale or purchase of derivatives such as stock-index futures, to profit from the price difference between the basket and the derivatives. Under Rule 80A, when the DJIA moves 50 points or more from the previous day's close,index arbitrage orders in stocks of the Standard & Poor's 500 are subject to a special tick test. Program traders are contrarians. They buy into weekness and sell into strength. Some of Wall Streets biggest names are the players in this game and you should not bet against them. They are among others: Merrill Lynch Bear Stearns, First Boston, Morgan Stanley, Deutsche Bank Sec, and Nomura. Be assured that these people know exactly what they are doing.

Odd-Lot Short Sales Daily Learn more about Program Trading

 

Rydex Nova/Ursa Ratio

A good sentiment indicator is the Rydex Nova/Ursa ratio because it is backed by hard cash and not just polls. It reflects the sentiment of the small guys who put their money into funds. Speculators who invest in the Rydex Nova fund are considered bullish on stocks because the fund has a target performance benchmark equal to 150% of the S&P 500 index (SPX). The Ursa (bear) fund is designed to provide a performance inverse to that of the SPX by using a combination of short selling and options on stock index futures.

Odd-Lot Short Sales Daily Learn more about the Rydex Nova/Ursa Ratio

 

The Specialists/Public Short Sales & Ratio

The Specialist/Public Short Sales Ratio is a market sentiment indicator. It is calculated by dividing the volume of the weekly short sales made by the public (non members) by the weekly short sales made by stock exchange specialists (members). A 4-week moving average is applied to smooth out the swings. The public is usually wrong about the trend of the market. If they are shorting heavily the market is usually ripe for an upturn. On the other hand, if they are doing relatively little shorting it is most likely that the market is near a correction, especially if specialists short sales increase at the same time.
High readings indicate heavy shorting by the public (the so called crowd) and therefore bottoms, low readings indicate tops. Historical chart also available!

Specialists/Public Short Sales & Ratio Learn more about The Specialists/Public Short Sales & Ratio

 

The Global Futures Trend Index

Why are some traders more successful than others? There are probably as many answers as there are traders out there. But you will undoubtedly agree that most of the money is being made in a trend, especially as far as options and futures are concerned. In options trading your biggest enemy by far is time. You need to have the patience and discipline to wait for a trend in the market in order to succeed on the long run. The same rule applies to any short-term oriented trader. The Global Futures Trend Index shows you clearly when to enter the market. This index is computed by dividing the daily highs by the sum of the daily highs and lows. A 10-week moving average is applied to smooth out the swings. As long as the readings of this index stay above the 80%-level there is a solid bullish trend in progress. Any weakness should be used to go long or to buy call options, preferably of stocks which are in a clear uptrend, or stock index options. Readings below 20 indicate a bearish trend. Strong days should be used to short stocks which are already weak, or to buy put options. As long as this indicator is in neutral territory don't do anything unless you are a savvy stockpicker, insider or a long-term value investor.

Global Futures Trend Index Learn more about The Global Futures Trend Index

 

Trin (Short Term Trading Index) - Arms Index

The Short Term Trading Index (TRIN) was invented over 30 years ago by Richard Arms and is also known as ARMS Index. It is calculated by dividing advancing issues by declining issues and advancing volume by declining volume. The first result is then divided by the latter and the result is the TRIN. If the index is above one, the average volume of stocks that fell on the NYSE was greater than the average volume of stocks that rose and vice versa. But it is most confirmative when it reaches extremes. This indicator rises sharply when the market is most depressed and selling is climaxing, and falls to very low levels during buying frenzies. Historical chart also available!

Trin (Short Term Trading Index) - Arms Index  Learn more about the Trin (Short Term Trading Index) - Arms Index

 

Vix (Volatility Index) and Vix Oscillator

VIX computes volatility of four OEX contracts in two nearby months and is published daily by the CBOE. Options selected for this index are one call and one put just out of the money, and one call and one put just in the money, for each of the two front months of the OEX (S&P 100). Extremely high readings of VIX indicate bottoms and low readings tops. Historical chart also available!

Vix (Volatility Index) and Vix Oscillator Learn more about the Vix (Volatility Index) and Vix Oscillator

 

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