Can You Read Market Indicators?

by Investing School on January 9, 2012

Market indicators are a collection of technical signs which traders use to predict how major financial indexes will move. The majority of such indicators are the result of significant amounts of analysis evaluating how many companies may have achieved new heights when compared to those which have hit new lows. This divergence is also referred to as market breadth.

You don’t have to come up with your own set of market indicators as there are already many in place for you to use. Evaluating said indicators will give you a better idea of how that particular segment of the market is doing at the time in which you want to invest.

Of course the real challenge any trader faces is determining which indicators are accurate and which are not. Here are some indicators which have been cited in the past:

  • Hemlines – the theory is that when hemlines are high so is consumer confidence and the markets are going up. When hemlines drop, so will the market.
  • Super Bowl indicator – If the AFL wins the Super Bowl, stocks will drop in the next year and if the NFL wins, stocks will rise. Believe it or not, this indicator has actually proven itself fairly accurate. Go figure.
  • The January Effect – This is a phenomenon where small cap funds outperform large and mid cap funds and the broader market in January. This occurs because smaller investors will sell off securities in December to offset their capital gains. In January they reinvest enjoying the drop in prices caused by their own selloff. The belief is that the market will continue to follow the trend set in January.
  • Aspirin Count Indicator – tough times call for more headache relief. When aspirin or Advil sales go up, expect the market to drop.

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