Game of Trades: SP500 Internals Are Flashing a Major Signal
There are plenty of data points for investors to consider when gauging a market move. When stocks rise on light volume, for instance, it may be a sign that a rally is finishing up as big investors have already bought in.
Another key tend is to look at the advance-decline line. It shows how many stocks are advancing versus declining. It may show that a market rally is being fueled by fewer and fewer stocks.
When only a handful of companies are responsible for a market move higher, a selloff could be imminent. Such a move occurred in late 2021, ahead of the market’s latest peak in January 2022.
In the meantime, the advance-decline line set a new low in December.
Since then, stocks have had a strong start to 2023. However, the data suggests that this might be another oversold bounce, rather than the start of a new bull market.
Even though the Nasdaq didn’t make a lower low in December’s decline, the advance-decline line made a lower low. But, the S&P 500 did not.
That suggests that overall markets may be sorting out opportunities, with tech stocks still susceptible to big swings. All told, the advance-decline line is one of many data points to consider, but it can give an advance warning for a big market change.