2020 was a tumultuous year for the markets, marked by the coronavirus pandemic and its economic fallout, and 2021 is likely to follow a similar script. While many investors remain cautious, there is evidence that 2021 could be a better year. Therefore, investors should turn their attention to the market breadth indicators that could potentially provide trading signals for the upcoming year.
It’s no secret that market breadth indicators such as the advance-decline line (ADL), the NYSE common stock only index (CSOI) and the McClellan oscillator can provide insight into the health of the overall market. However, there are a host of other market breadth indicators that are just as important, but are not as widely known or used.
One such market breadth indicator is the NYSE weekly bullish percent index, which shows the number of stocks in the NYSE that are in a strong bullish condition. This index is a powerful market breadth indicator that can help investors identify trading set-ups where stocks are likely to continue their positive momentum.
Another market breadth indicator that has grown in popularity in recent years is the NYSE daily dose of contrarian analysis (DDCA), which can help identify potential opportunities to buy into stocks that have been hit hard by bearish sentiment. These stocks might have higher upside potential since the underlying factors that caused the bearish reaction have already been priced into the stock.
Still another market breadth indicator to keep an eye on is the fear and greed index. This indicator measures market sentiment by analyzing various data points such as the price of bonds, the growth rate of corporate profits, and the rate of unemployment. By using this indicator, investors can identify the market’s risk appetite and take advantage of opportunities during periods of higher investor risk.
With 2021 likely to be a volatile year in the markets, it is important for investors to keep an eye on market breadth indicators such as the advance-decline line, the NYSE weekly bullish percent index, the NYSE daily dose of contrarian analysis, and the fear and greed index. By paying attention to these indicators, investors can stay ahead of the market’s action and take advantage of trading opportunities as they arise.