Market Internals

What are Market Internals?

Market internal indicators provide insight into the overall health and direction of the market.

  • The advance/decline line tracks the ratio of advancing stocks versus declining stocks, with a rising line signaling market strength.
  • Up/down volume measures the total traded volume in advancing versus declining issues, confirming price trends.
  • New highs and new lows monitor how many stocks are making fresh 52-week highs versus lows, identifying potential exhaustion.
  • The TRIN (Trading Index) oscillates around 1.0 to show whether there is more buying or selling pressure across the market.
  • The put/call ratio reveals sentiment by looking at the volume of traded put options versus calls.
  • Other breadth indicators consider market cap weightings and the percentage of stocks above/below moving averages.

You can understand market internals as overall guidance of market activity, rather than a buy or sell signals for a specific stock.

Often, different market internals indicate different states of the market, which makes it difficult to use them combined.

Why Market Internals Matter

While major indices provide the widely-quoted view of the market, internals reveal what is happening under the surface across the broader group of stocks.

Strong internals with heavy up volume, rising advance/decline, and increasing new highs signal a healthy uptrend where rallies are confirmed. Weak internals show a lack of participation and upside momentum distribution.

Monitoring internals helps identify potential trend reversal points before they are obvious on price charts alone. They also allow traders to manage risk by adjusting position sizing if internals diverge bearishly from rising prices.

Using Market Internals

Reading market internal data involves understanding what levels or numerical thresholds represent overbought or oversold conditions for each indicator.

Some are mean-reverting oscillators like TRIN, while others, like advance/decline, are cumulative lines. Divergences between internals and price action are carefully watched, as they can foreshadow an impending trend change if buyers/sellers begin to show decreasing conviction.

Confirming price trends with multiple internal indicators and adding evidence builds higher confidence in trading signals.

Specific Internals to Follow

The NYSE Advance/Decline Line is one of the most widely followed market internal indicators, plotting the cumulative difference between advancing and declining NYSE issues each day.

Up volume and down volume confirm buying and selling intensity behind price moves. Tracking new highs versus new lows points to potential exhaustion when few stocks are making fresh peaks.

When to Use Internals

Market internals are applicable to all timeframes from intraday day-trading out to long-term position trading and investing. Day traders may utilize internals like TRIN, up/down volume, and advance/decline to time entries and exits on trades.

Swing traders rely more heavily on monitoring internals to identify trend reversal points for swing longs and shorts. Even investors building longer-term portfolios can use internals to manage risk-adjusted position sizing or raise cash when the weight of evidence turns bearish.

Learning Resources

There are many free online guides, articles, videos, and charting resources covering the most important market internal indicators to follow.

Beginner guides explain what each indicator represents, how to calculate and interpret the data, and ways to effectively apply the analysis. Video examples visually demonstrate how internals are used in conjunction with other technical trading tools.

Some financial websites also provide pre-built charts and visualizations to monitor selected groups of internal data streams.

Alexander Voigt, CEO
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Alexander Voigt is the founder of DayTradingZ, was a regular contributor to Benzinga and has been featured and quoted on leading financial websites such as Investors.com, Capital.com, Business Insider and Forbes.