Technically Strong Market

Technically strong market reflects healthy signals or positive data points from money flow or technical analysis. Common indicators include advance/decline line (A/D), Arms Index (TRIN) and moving averages.

As an example, a market in which increasing average trading volumes accompany increasing average prices, denoting positive money flow, is considered a technically strong market. Bullish activity in the market can be expected to continue. In the same vein, when declining average trading volumes occur with decreasing average prices, there is an indication that pre-existing bearishness is on the wane. Softness in prices is firming up in this technically strong market scenario.

The advance/decline line is a popular tool for gauging overall market internals. If the A/D line is positively sloped and the market is trending upwards, the market is said to be technically strong. A related measure of market breadth, which shows the extent of participation of stocks in market rises, is the Arms Index. The way that this index is calculated, a value of less than 1.0 is indicative of healthy bullish activity. More visual for the average investor are moving average lines, whether 50-, 100- or 200-day varieties. The average investor can see where a current market line is relative to the moving average lines. Simply, a market that is trading above these lines is considered to be in good shape.

Technical analysts try to profit from trends in the prices of securities. They believe that historical pricing trends tend to repeat themselves, and by using price charts to identify these trends they can determine the best times to buy or sell to make a profit. When they spot a technically strong market for a security, a basket of securities or a broad index, they can express their bullishness in long positions.