We are all trying to find the edge in stock market investing. Realizing a leg up on the majority of the investing world provides a greater chance of beating the market.
Trying to do so with incomplete information can be frustrating, challenging, and discouraging. These four data points are imperative to generating relevant research.
Getty Images
Volatility Index
First, the Volatility Index (VIX). This tracker is often known as the market fear gauge. What it does is quantifies the level of put option exposure market participants have in their portfolios at any given time. More hedging depicts heightened fear and uncertainty in positive market outcomes. When I see a rising VIX it tells me larger market moves and more market turbulence is on the way.
The pandemic-induced market crash saw a VIX approach a historic high of 80, when a typical reading is anywhere between 10 and 20. With that historic climb the market concurrently saw its most rapid 30% decline ever, most likely not a coincidence. This index has since dwindled down to a still heightened level around 30. Markets moved higher in tandem with the volatility decline. If we can approach the normal range of VIX values, the market should head higher. The Motley Fool website does a great job tracking the important data point.
S&P 500 Oscillator
The S&P 500 Oscillator explains how overbought or oversold the market is as a whole. The measurement considers things such as inflows and outflows, shifting moving averages, and market volume to calculate a value. A negative reading means stocks are oversold (meaning a bounce back is due), with a positive number depicting overbought conditions (meaning a decline is due). Extreme readings either way hint at a looming stock market pivot in the other direction.
During the crash, the oscillator approached -6, a historically low reading. What happened next? Like clockwork, within days the market began recovering just like it is supposed to. Maybe equities make sense after all. Even after the market’s strong rally, the S&P 500 Oscillator is well off of extreme overbought levels suggesting this market still has room to run.
Treasury Bill Yields
Bonds don’t normally receive ample attention and publicity, but they are important regardless. Why? Fixed income serves as direct competition for total equity yields. Sinking interest rates depict investors all over the world willing to pay more for lower returns seen as safer than common equity returns (dividends & capital appreciation).
In other words, low rates depict stock market uncertainty via a flight to safety; treasury bills are trading at historically low rates. This flight to safety pressuring yields does show market fear, however it also makes owning a stock more appealing with each incremental move lower in bond returns.
Eventually, yields typically become less attractive to a point where funds are shifted to equity opportunities, raising markets. Alternatively, rising yields could mean the opposite, with bond market income competing more effectively with stock returns.
Oil Prices
Energy prices typically track economic activity and social movement. Normalizing inventories and rising prices offer proof of an economic recovery gaining its footing. The peak of covid-19 chaos led to a generational low in the United States Oil fund (USO 0.35%). Higher economic activity is typically followed by higher energy demand and price; we are finally seeing those signs.
Based on this, it is no wonder why this commodity is so closely connected to stock prices. Recent market bottoms and market recoveries coincided with an oil price bottom and subsequent recovery.
No metric is a perfect market moving forecast. Regardless, it is vital to compile as much information as possible to guarantee making the most informed decision, with the most complete ideas. For investors dedicated to doing so, it may be worth your while to track these four statistics.
