Stock Market Gauges

...over the years I’ve learned that any technical tool, no matter how good its record, will throw you a curve at some point. If you lean too heavily on just a few indicators, your system will sooner or later take you out into left field. But if you learn to listen to the collective message of the majority of these fine gauges, your probabilities of ending up on the wrong wavelength are quite small.

Stan Weinstein's Secrets For Profiting in Bull and Bear Markets by Stan Weinstein

Major Market Indexes

The most regularly quoted market indices are national indices composed of the stocks of large companies listed on a nation's largest stock exchanges, such as the American S&P 500, the Japanese Nikkei 225, and the British FTSE 100. Of course, they are widely used as a market gauge and you can see their charts on the Market Gauges page.

The Advance-Decline Line

The one of not very common market gauges, described by Stan Weinstein, is the advance-decline line. The advance-decline line isa breadth indicator that reflects participation, it takes the difference between the number of issues advancing on a given day and the number declining. It makes sense to monitor this indicator for major exchanges and currently you can find on The Advance-Decline Line for the New York Stock Exchange and NASDAQ.

It is really easy to use this gauge – "as long as both the advance-decline line and the Dow Jones Index are moving higher in gear with each other, there is nothing to worry about; it is very unlikely that the market will experience even a significant correction. However, when this indicator starts to lose upside momentum as the DJI continues to charge higher, that is a negative divergence signaling market trouble ahead."

Stan Weinstein is talking about comparing The Advance-Decline Line with the Dow Jones Index, however it seems appropriate to compare it with S&P 500 as well, because S&P 500 covers more than 75% of US stock market and very often used as indicator of a market health.

The Fear Gauge

VIX is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of s&p 500 index options. often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period.

Treasury Yield Rate

The shape of the yield curve gives an idea of future interest rate changes and economic activity. There are three main types of yield curve shapes: normal, inverted and flat (or humped). A normal yield curve is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. In a flat or humped yield curve, the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition.

Check current Treasury Yield Curve shape or read more on how to incorporate Treasury Yield Curve into your analysis.