Market indicators are quantitative in nature and seek to interpret stock or financial index data in an attempt to forecast market moves. Market indicators are a subset of technical indicators and are typically comprised of formulas and ratios. They aid investors’ investment/trading decisions.
Market indicators are similar to technical indicators in that both apply a statistical formula to a series of data points to draw a conclusion. The difference is that market indicators use data points from multiple securities rather than just a single security. Often times, market indicators are plotted on a separate chart rather than appearing above or below an index price chart.
The two most common types of market indicators are: Market Breath and Market Sentiment.
Market Breadth indicators compare the number of stocks moving in the same direction as a larger trend. For example, the Advance-Decline Line looks at the number of advancing stocks versus the number of declining stocks.
Market Sentiment indicators compare price and volume to determine whether investors are bullish or bearish on the overall market. For example, the Put Call Ratio looks at the number of put options versus call options during a given period.