Rally Running Out of Steam? 5 Key Indicators to Help You Spot a Trend Change
While predicting the market's next move is impossible, certain indicators can assist in identifying signs of a potential shift in direction or sentiment.
This article delves into five such indicators you can keep an eye on to stay ahead of a possible change in market direction.
One of my favorite tools that I often use is Relative Strength.
In simpler terms, a bullish trend signifies that the asset at the numerator outperforms the one at the denominator.
Conversely, a bearish trend indicates the opposite. When the trend moves sideways, signaling no clear direction, both assets experience equal percentage increases and decreases.
Often, the most effective solutions are the simplest. Now, Here are the five simple indicators that can help you spot a trend change:
From the VTI vs. AGG chart, we can see that the trend continues to be in favor of equities, after the lows in 2020 and lateralization in 2022, with the ratio recently performing positively and making a new all-time high.
Moreover, in bullish markets, the best stocks not only perform well in absolute terms but also outperform their 'alternatives'. And US Treasuries are the alternative to equities. QQQ vs. IEF:
After a bearish 2022 trend in favor of Treasuries, the Nasdaq outperformed sharply in 2023 and recorded new all-time highs.
During 2023, as we see from the VTI vs. DBC chart, again the trend went in favor of equities, with the ratio recovering 2-year highs.
Specifically, the Nasdaq relative to Gold is trending bullish, although it has not yet recorded new all-time highs some 10 percent away. QQQ Vs. GLD:
SPY vs. IJR:
The trend has changed since the March 2021 lows, an impressive move accelerated during 2023 by large-cap stocks.
Currently, previous all-time
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