When it comes to studying the financial markets, investors frequently have to sift through huge amounts of data and conflicting points of view. How can investors find their way through these waters cluttered with noise? The answer is to look at a few solid, simple-to-understand metrics. These signals aid in evaluating the health of the market overall without getting stuck in the pond of analysis paralysis. Armed with the necessary information, you can act quickly and decisively, all while avoiding any unnecessary pitfalls.
In this article, we will consider 10 indicators to gauge market health that you can employ to read market flows, keep your risks under control, and ultimately make better decisions. Whether you are an experienced investor or a beginner, they will quickly give you easy a at-a-glance clues about market strength and potential direction changes. We’ll also discuss why simple is generally better when weighing market health, so you don’t have to overthink the process and can focus on what truly matters.
Let’s dive right in!
1. Nasdaq McClellan Summation Index (NMSI)
How it works:
Nasdaq McClellan Summation Index (NMSI) NMSI is based on the McClellan Oscillator, which is the difference between the number of advancing and the number of declining issues. It utilizes two exponential moving averages (EMAs) — the 19-day EMA and the 39-day EMA — to monitor market momentum. NMSI in an uptrend means that most of the stocks are moving according to a rally trend, which indicates a strong trend. On the other hand, the fact that it is falling signals a contracting market and, in many cases, warns that we are likely to see some weakness ahead.
Why it’s valuable:
The NMSI is an important market breadth measure. A powerful market rally is best confirmed by strong participation from a wide variety of stocks. An uptrending NMSI represents a broad-based robust rally, while a declining NMSI is an indication that less stocks are participating (early warning of a correction). It assists investors in closing in on the real muscle behind a stock market advance, and so is a critical tool for long-term market players.
As of January 1, 2025, the number of advancing issues of the Nasdaq Stock Exchange is shown on the NMSI chart to be persistently rising. The indicator is at its highest level for more than a year, and it confirms that stocks are in a strong, widespread rally. This is another favorable indicator signifying that the market is robust and that it is propelled by several stocks and not a few, which leads to further expansion.
“Market breadth is the foundation of a strong rally, and the McClellan Summation Index is a fantastic tool to gauge it,” says Tom McClellan, creator of the McClellan Oscillator.
2. CNN “Fear & Greed Index”
How it works:
The CNN “Fear & Greed Index” is a sentiment indicator that incorporates seven of the most significant indicators, such as stock price or market momentum, market volatility, and stock price breadth, among others, into a single measure of investor sentiment. The gauge reads from 0 (extreme fear) to 100 (extreme greed). Near zero, the index is warning that fear is the dominant market emotion, and near 100, the index is warning that greed is prevailing.
Why it’s valuable:
This index provides a plain and simple way to measure market sentiment. You can use the “fear and greed” readings to determine when markets might be overbought or oversold. Likewise, extreme fear represents a buying opportunity since people and markets recover from panics.’ Extreme greed, however, can indicate that the market is overvalued and that it may be wise to take some profits. It’s a powerful tool to help investors maintain discipline and not make emotional decisions.
The CNN Fear & Greed Index is 65 as of January 2025, indicating a state of mild optimism in the markets. While this is not already in the “extreme greed” territory, it suggests a healthy sentiment, with plenty of room for caution if the index continues to advance further into the greed zone.
“Be fearful when others are greedy, and greedy when others are fearful,” famously advised Warren Buffett. This wisdom aligns directly with the insight the Fear & Greed Index offers.
3. 200-Day Moving Average (200-DMA)
How it works:
200-DMA is a long-term indicator of a security’s trend. It measures the average price of a stock or index over the past 200 days, ironing out short-term changes. When the price is trading above the 200-DMA, it means the market is on an uptrend. It is a sign that the market, when it is trading lower than the 200-DMA, is generally in a downtrend. This is a signal investors listen to in order to understand which direction the market may be heading and whether it is a bullish or bearish market.
Why it’s valuable:
The 200-DMA is a popular and accurate barometer of the long-term market trend. It gives a loud, simple, clear signal telling if the market is bullish or bearish. The 200-DMA is viewed as a key support or resistance level by large investors. When the market is above the 200-DMA, it is generally regarded as being in an uptrend, which may encourage investors to remain with the same mindset as the market goes. It’s also a defense mechanism, a signal for when to leave or cut back during a downtrend.
In January 2025, the S&P 500 is trading far above its 200-day moving average, validating the bullish long-term trend of the stock market. The market has not fallen beneath the 200-DMA since the start of 2024, and the continued upward trend indicates the current rally is robust.
“Trends are your friends until the end,” says renowned trader Ed Seykota. The 200-DMA helps investors stay in tune with the prevailing market direction, reducing the chances of being caught off guard by trend reversals.
4. Net New Highs – Lows
How it works:
The net New Highs – Lows indicator is calculated by looking at the difference between the number of stocks making new 52-week highs and new 52-week lows. When the number is positive, as opposed to negative, more stocks are making new highs, more or less a measure of the weakness or strength. Conversely, a negative number indicates that more stocks are hitting a new low for the first time, which may be bearish for the stock market.
Why it’s valuable:
This measure acts as a temperature check of the market’s innards. A market with more stocks that are hitting new highs tends to be more broad-based, a strong sign for continued bullish momentum. The stock market overall may be doing well, but if more stocks are making new lows, it can be a sign of underlying market weakness. This indicator can be a tool for investors to determine the stock market’s strength and identify changes in bullishness/bearishness before it shows up in the broader price action.
Yet there continue to be more new highs than new lows, despite growing angst about the market rally. Market breadth continues to be positive, as most stocks are in good shape technically, validating the bull market trend.
“New highs are the best leading indicator of a bullish market, while new lows show you the cracks beneath the surface,” says technical analyst John Murphy.
5. “Stock Market Fear Index” (VIX)
How it works:
The VIX, also known as the “Stock Market Fear Index,” estimates how much volatility investors expect in the future with is options trades. It is a measure of investor expectations of future market volatility over the next 30 days. When the VIX is rising, this means that there is more uncertainty or fear; when the VIX is falling, this means that investors anticipate less volatility or more stability.
Why it’s valuable:
The VIX is widely known as a measure of market risk and investor sentiment. The VIX spiking indicates more fear and uncertainty in the market, which are generally associated with major market declines. On the other hand, a low VIX signals complacency… And yes, it can also signal an overbought market. Investors also use VIX as a gauge of market risk and to modify their white collar trading strategies. A high level of the VIX can encourage hedging strategies, and a low VIX implies diminished near-term risk.
The VIX is around 18, relatively low for early 2025, reflecting a relatively stable and hopeful market. The quietness in the market right now is a far cry from the insane volatility that was seen during the COVID-19 crisis in 2020, when the VIX hit 80+.
“Volatility is not our enemy; it’s simply the price of opportunity,” says Tom Sosnoff, emphasizing the importance of recognizing volatility as a potential opportunity in the market.
6. “Stock Market Fear” & Volatility
How it works:
The “Stock Market Fear” index (VIX) price is derived from the implied volatility of S&P 500 options. When implied volatility is up, the VIX is up, which means investors are expecting larger market swings. Elevated VIX tends to accompany high-uncertainty periods, usually indicating probabilities of a correction.
Why it’s valuable:
The VIX is useful because it lets investors gauge how scared the market is, essentially. During tumultuous market periods, the VIX spikes higher, and in times of calm or optimism, it falls. Through monitoring the VIX, investors can determine whether the market is expected to be more or less risky by comparing the current conditions to what the index indicates. A high VIX can also indicate that fear has reached extremes, which has tended to be a strong contrarian buy signal.
The VIX is less than 20 as the market heads toward 2025, an indication of relatively low market fear and volatility. It means that the market is in a period that is calm enough that investors feel safe now, but know enough to not feel safe out three months.
“Risk comes from not knowing what you’re doing,” says Warren Buffett, reminding investors that even in calm market conditions, it’s crucial to understand the risks and be prepared for volatility when it emerges.
7. Advance/Decline Line
How it works:
The Advance/ Decline Line is the difference between the number of advancing stocks and the declining stocks for any given day. An advancing Advance/Decline Line is confirming a majority of stocks are rising, which is reflective of a healthy market. On the other hand, a declining Advance/Decline Line suggests less participation in the market rally and may point to a weakening market or a trend that is narrowing.
Why it’s valuable:
That’s important because it gives investors a sense of whether a market rally is broad-based or is being driven by a few stocks. A healthy market should have an advancing Advance/Decline Line, which indicates many stocks are moving up together. If it is flat or declining, that indicates the rally is not as healthy, and the market may be more susceptible to reversing course.
The AD line for the S&P 500 has been trending up consistently in 2025, suggesting that there has been broad-based participation in the rally underway. This participation by a wide group of markets is all the more indication that the current move has legs.
“The Advance/Decline line tells you how healthy the market really is,” says Martin Pring, a well-known market technician.
8. Put/Call Ratio
How it works:
The put/Call Ratio measures the number of put options (bets on a decline) compared to call options (bets on a rise) traded in the options market. A high Put/Call Ratio would indicate that investors are bearish and expect a pullback, and a low Put/Call Ratio would suggest that investors are bullish and demand is driving the price higher.
Why it’s valuable:
The Put/Call Ratio is an excellent contrarian indicator. A high reading would reflect a fear-filled market, which could signal a buying opportunity, as markets tend to bounce back after fear has surged initially. Conversely, a low ratio can indicate the market is too optimistic about an upward move in the price and could lead to sell indications or cautiousness. Tracking this ratio gives access to the sentiment of the market and can help you time the way in which you trade.
The Put/Call Ratio is currently 0.7 as of early 2025, which is relatively bullish. This doesn’t indicate bullish power, but is likewise not extreme, so you want to be cautious if all of a sudden this ratio heads lower.
“The Put/Call ratio is a contrarian indicator of market sentiment,” says Adam Grimes, an expert in market psychology.
9. Moving Average Convergence Divergence (MACD)
How it works:
The Moving Average Convergence Divergence (MACD) is a momentum indicator that works by showing the relationship between two exponential moving averages (EMAs). It is the difference between the 12-day and 26-day EMAs and is drawn as a line. A bullish signal is produced when the MACD crosses above its signal line. Similarly, when it falls below its signal line, it is a bearish signal.
Why it’s valuable:
The MACD holds no value unless an investor is able to use this to help spot a change in market momentum. It’s very powerful to find trend reversal. When the MACD crosses above the signal line, this is often seen as the start of an uptrend, and conversely, when it crosses below the signal line, everyone knows to start looking for a pair of rain boots. The MACD is particularly useful in trending markets, giving investors clear buy and sell signals.
The S&P 500 MACD has been firmly bullish since early 2025, with the MACD flying high above the signal line. This indicates that the market is in a great sign of bullish momentum.
“Momentum is the key to sustaining a trend,” says Jack Schwager, a renowned market expert.
10. Presidential Election Cycle Seasonality
How it works:
The seasonal concept of the Presidential Election Cycle comes from the averages that were produced from a set of data covering the stock market in each year of the presidential cycle. The market tends to do better in a president’s second and third years in office, once the president has settled into the role and put major administration policies into motion.
Why it’s valuable:
This figure supplies investors with a historical snapshot of how the market has performed under various stages of a president’s term. By getting a sense of these historical trends, investors can modify their expectations for market performance in election years or the opening years of a new presidency. This can be useful to help decide when to enter or cut exposure to high-risk assets.
In 2025, the U.S. market is three years into President Biden’s tenure, typically a time of strong market returns. The historical return of the & S&P 500 is approximately 10-12% during this phase of the presidential cycle, implying that the market will perform well in the near future.
“Politics have a huge impact on the economy and market conditions,” says Jeffrey Hirsch, financial strategist.
Conclusion
In the whirlwind of news about turbulent markets, it’s helpful to have some perspective. But, by looking at a handful of these key barometers – such as the 200-DMA, the Fear & Greed Index, and the VIX – you can get a better feel for market health without getting caught in analysis paralysis. No matter whether you’re following the “stock fear index,” the “market sentiment today,” or any other of the numerous investor routines we’ve compiled, these 10 indicators stand as reliable indicators for gauging market trends.
And, by concentrating on these essential metrics, you can think more clearly and not fall into the trap of over-analyzing. Less is more: Explore more in-depth resources, such as the course KeyToVision Investment Beginner Subscription, to enhance your understanding.
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