NYSE Margin Debt
The NYSE Margin Debt number gives you an idea of how confident stock traders are in the prospect of stocks increasing in value.
Buying stocks using borrowed money from your broker is called buying stock on margin. Every month, the New York Stock Exchange (NYSE) releases numbers showing how much money was borrowed on margin to buy stocks on the NYSE.
As you can imagine, the amount of stock bought on margin is extremely large, but the total number fluctuates quite a bit based on how confident traders are. When stock traders are confident, they borrow more on margin. When stock traders are less confident, they borrow less on margin.
You will most likely see an increase in margin borrowing once the stock market finds a bottom.
S&P 500 Bullish Percent Index
The S&P 500 Bullish Percent Index gives you a much broader picture of just how many stocks are moving higher than you can get by looking at the value of the Dow Jones Industrial Average or the S&P 500.
The S&P 500 Bullish Percent Index is a point-and-figure chart that derives its value from the point-and-figure charts of the 500 stocks that comprise the S&P 500. Here’s how it works:
– If an increasing number of those 500 stocks are showing buy signals on their point-and-figure charts, the S&P 500 Bullish Percent Index will be moving higher.
– If an increasing number of those 500 stocks are showing sell signals on their point-and-figure charts, the S&P 500 Bullish Percent Index will be moving lower.
You will most likely see a broad number of stocks—not just a few select shares—increasing in value once the stock market finds a bottom.
Short Interest
Monitoring the short interest in the stocks you are interested in buying will give you a good idea what the investor sentiment toward those stocks is.
Short interest is the number of shares that investors are currently short on a particular stock.
For instance, if stock traders shorted 15 million shares of a company and then covered 5 million shares by buying the stock back, the current short interest would be 10 million shares (15 million – 5 million = 10 million).
You will most likely see the short interest in major stocks decline once the stock market finds a bottom.
Conclusion
While no indicator is a magic bullet for identifying a market bottom, monitoring a few broad economic indicators can give you a good idea of how healthy the global economy and the stock market are.
After all, stocks go up when the companies represented by those stocks do well, and companies tend to do well when the global economy is healthy and functioning correctly.