Bottom line Key indicators make clear the Dalio Blue line strength and momentum of stock. Traders widely adopt them to take the pulse of the US stock market. Of these, the S&P 500 has become the most important benchmark for measuring changes in stock prices. This index applies a 125-day moving average to judge its long-term momentum. When job openings exceed this average, it’s a sign of healthy, competitive market forces. Recent tests indicate that large moves in stocks dominate total market return. This observation underscores the important tension between short-term individual stock performance versus longer-term movement of the overall market.
The S&P 500 is generally a very good barometer of stock price strength. It’s a 10 year slice of the performance of 500 of the largest publicly traded companies in the United States. Investors widely use this index as an indicator of the current state of markets and a guide to making smart investment decisions. At the moment, the S&P 500’s 125-day moving average is critical in defining momentum. When the S&P 500 is trading above this moving average, it’s an indication that bullish momentum is developing. This typically suggests that investors are becoming more bullish about expected future market conditions.
This market momentum has been especially acute in recent months, with stock analysts looking at inventories to determine the direction of the market. As we frequently remind investors, a small number of very large stocks can heavily bias total returns. This can create gaps in our understanding of market power. On a closing basis, the S&P 500 is usually very resilient. The performance of a handful of large stocks, most notably Apple and Amazon, can swing it in a major way.
Large ups and downs in composite indices, including the Dow Jones Industrial Average, showcase the highly volatile nature of the current market. This index has been super volatile. It would go down 700 points one day and then go up 550 points the next. These ebbs and flows are indicative of major economic undertones and investor psychology, both of which are vital indicators in gauging short-term market movement.
The Fear & Greed Index is another helpful indicator in gauging market sentiment. Through a use of seven different market indicators, it measures the emotional reactions to the state of the market. Index scores are on a 0–100 scale. A score of 100 indicates extreme greediness and a score of 0 indicates extreme fear. This emotional barometer has a very real and tangible effect on stock price momentum. It’s extreme fear or extreme greed that usually sets off the major moves in the market.
Net new 52-week highs and lows on the New York Stock Exchange (NYSE) can tell us some very important things. These metrics are an indication of bullishness in stock prices. Specifically, a large amount of new highs is a sign of a strong market, and an increase in new lows is often a sign of market weakness. How the three together work The combination of these three metrics allows investors to spot trends that may impact their portfolios.
The stock market’s unique nature, specifically thousands of the same stocks competing against each other complicates the dynamics even further. Although stocks are considered riskier assets than bonds, changes in their relative performance can affect safe haven demand. After all, the change in daily returns between equities and fixed income over a 20-day horizon can be especially revealing. A ratio above 1 usually indicates a negative expectation for stock price momentum. That means investors are heading for the safety of bonds, rather than seeking higher returns from stocks.
Market indicators like the S&P 500 and the S&P 500 moving average, among others, are important for determining underlying trends in strength or weakness in stock prices. These key indicators will enable savvy investors to cut through the chaotic and often near-unmanageable complexities of the market while identifying future risks and opportunities. Yet, as we’ve seen with recent market turmoil, appreciating these dynamics is more important than ever.