Indicators To Predict Stock Market Behavior

In order to invest with success, it pays to understand indicators that predict what the state of the economy will be. These indicators primarily focus on the macroeconomic effects of events, think big-picture. However, as an investor, you should not only be directly concerned with what the economy will do, but also with what the overall investment market is doing. To do so, it is important to pay attention to stock market indicators that hint to you what direction the market will go in.

The most basic to familiarize yourself with is called a leading indicator. This is a measurable change that occurs in the market before the market starts to follow in that particular pattern or trend. In other words, a leading indicator tells us that a sustained drop or rise in the stock market is likely to happen. While leading indicators are not always accurate, they are good predictors if used in combination with other analysis.

If you want to predict the movement of the stock market, another good indicator to use is the advance-decline line. This is the number of stocks in the market advancing in price subtracted by the stocks declining in price during the same period, which is then divided by the advance-decline line value of the previous period. The value of this indicator communicates to investors the strength of the current stock market movement and how likely that movement will last.

Another indicator worth understanding is the put-call ratio. This is the ratio of put options to call options. Someone who purchases a put option has a negative outlook on the price of a security and someone who buys a call option has a positive outlook on the price of a security. In a nutshell, the higher the put-call ratio, the more negative the outlook for the stock market is. It is what we call a contrarian indicator, meaning that when the put-call ratio has a negative outlook for the stock market, it is signaling that it is a good time to invest in the stock market. It follows the logic of one of Warren Buffett’s sayings: “Be fearful when others are greedy and greedy when others are fearful.”

At Fogel Capital Management, we keep a keen eye on the stock market indicators discussed throughout this article as well as several other data points. Our team comprised of former Wall Street professionals are equipped with the tools and knowledge to predict how the stock market will behave and how to implement the best plan of action. Although past performance is no guarantee of future results, our investment portfolios have regularly outperformed the market as measured by standard industry indices. We work directly with each client to ensure that the risk of each portfolio is in line with our client’s objectives and risk tolerance. Please call us today at (772) 223-9686 for a free portfolio review or consultation.