Stock market indicators give an idea of the mood of the market and its potential direction. Depending on current economic conditions, they tend to change as broad investor concerns change. Stock market indicators are slightly different from economic indicators, which move the market and are used to predict market direction. Technical indicators also play a big part in forecasting market movements, and some traders watch only the technicals.
A stock market indicator acts as a gauge of current market sentiment and can help investors gain a glimpse into potential action over the short-term.
Identifying Economic Indicators
The Conference Board's Index of Leading Economic Indicators, one of the most watched by market participants, contains 10 measurements that include employment, manufacturers' orders, the market for housing, stock prices, interest rates and consumer expectations. Increases in the index show improvement in the economy and encourage investors.
The Bureau of Labor Statistics also releases economic statistics that investors watch closely. These include employment, producer prices and productivity.
The U.S. Department of Commerce also issues economic information that is considered important for the stock and bond markets. It includes figures on retail sales, gross domestic product, inventories, personal income and balance of trade.
Exploring Stock Market Indicators
The most widely watched indicator specific to the stock market is the Standard & Poor's 500 index and its average price/earnings ratio. These are direct indicators of market performance.
During recessions, the Commerce Department's consumer confidence index and the Bureau of Labor Statistics' jobless claims announcements are key market drivers.
During boom times, other numbers are thought to foretell a change in the economy and, therefore, a change in the securities markets. These include the balance of trade, gross domestic product, productivity and durable-goods orders.
Evaluating Technical Indicators
Technical indicators are used with price charts of the major stock market indexes such as the Dow Jones industrial average and the S&P 500. Technicals analyze where the market has been, and they attempt to forecast where it is going. Important technicals include the advance/decline ratio, advance-decline volume, moving averages, the McClellan Oscillator and Summation Index, and the volatility index.
Other Important Indicators
There is no single stock market indicator to follow, because the market changes constantly with the economy, the geopolitical situation and specific events.
Some traders and investors also look to coincidental indicators such as the length of skirts, whether the NFL or the AFL wins the Super Bowl, the direction of the market each January, and how many Big Macs are sold. Some of these have been surprisingly accurate as indicators.
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.