Understanding Market Analysis Tools
Market analysis is crucial for understanding overall market conditions before making individual stock decisions.
Our Market Health and Market Strength tools provide comprehensive insights into market breadth, momentum, and risk distribution.
Market Health Overview
Market Health provides a comprehensive view of overall market conditions through drawdown and performance distributions. It helps you understand:
- How many stocks are in drawdown vs. near highs
- The distribution of returns across the market
- Whether the market is oversold or overbought
- Risk levels across different market cap segments
Key Health Metrics Explained
Drawdown Distribution
Shows percentage of stocks in different drawdown ranges (0-10%, 10-20%, etc.)
Insight: Higher percentages in deeper drawdown ranges indicate market stress
Performance Distribution
Displays percentage of stocks in different return ranges
Insight: Broader distribution in positive ranges suggests healthier market
Median Drawdown
The middle value of all stock drawdowns
Insight: Rising median drawdown often precedes market corrections
Mean Drawdown
Average drawdown across all stocks
Insight: Divergence from median indicates outliers affecting the market
Understanding Drawdown Distribution Charts
What is Drawdown?
Drawdown measures how far a stock has fallen from its recent peak: ((Peak - Current) / Peak) × 100
The distribution chart shows what percentage of stocks fall into each drawdown range:
- 0-10%: Stocks near their highs (bullish)
- 10-20%: Normal pullback range
- 20-30%: Significant correction territory
- 30-40%: Bear market for individual stocks
- 40%+: Severe drawdown (distressed or major correction)
Market Strength Analysis
Market Strength tracks momentum through new highs and lows across different time periods, providing insight into market breadth and direction.
High-Low Differential
The difference between stocks making new highs and new lows. This is a powerful breadth indicator:
- ↑ Positive differential: More stocks making highs than lows (bullish breadth)
- ↓ Negative differential: More stocks making lows than highs (bearish breadth)
- → Near zero: Market indecision or transition phase
| Period | Type | Best Use | Sensitivity |
|---|---|---|---|
| 4 Week | Short-term | Day trading and swing trading signals | High - reacts quickly to market changes |
| 13 Week | Medium-term | Quarterly trends and sector rotation | Moderate - balances noise and signal |
| 52 Week | Long-term | Major trend identification and position trading | Low - filters out short-term volatility |
Available Time Periods
Different time periods reveal different market dynamics:
3 Months
Recent market behavior and short-term trends
6 Months
Half-year view for medium-term analysis
1 Year
Annual cycles and seasonal patterns
2 Years
Extended view for major trend analysis
Market Cap Filtering
Analyze specific market segments to understand where strength or weakness is concentrated:
| Range | Category | Characteristics |
|---|---|---|
| 500Cr - 1kCr | Small Cap | High volatility, growth potential |
| 1kCr - 5kCr | Small-Mid Cap | Emerging companies, moderate risk |
| 5kCr - 25kCr | Mid Cap | Established businesses, balanced risk-reward |
| 25kCr - 50kCr | Large-Mid Cap | Market leaders in sectors |
| 50kCr - 100kCr | Large Cap | Blue chips, lower volatility |
| 100kCr+ | Mega Cap | Market bellwethers, highest stability |
Interpreting Market Patterns
High percentage in 0-10% drawdown
What it means:
Market near highs, potential overbought
Action to consider:
Consider taking profits or tightening stops
High percentage in 30%+ drawdown
What it means:
Market stress or correction phase
Action to consider:
Look for quality stocks at discount
Positive high-low differential increasing
What it means:
Strengthening market momentum
Action to consider:
Favor long positions, increase exposure
Negative high-low differential widening
What it means:
Weakening market breadth
Action to consider:
Reduce exposure, consider defensive positions
💡 How to Use These Tools Together
Start with Market Health
Check the overall drawdown distribution to understand if the market is extended or oversold.
Confirm with Market Strength
Look at high-low differentials to confirm if breadth supports the health reading.
Filter by Market Cap
Identify which segments are leading or lagging to focus your stock selection.
Compare Time Frames
Use multiple periods to distinguish between short-term noise and genuine trend changes.
Key Takeaways
- ✓ Market Health shows risk distribution through drawdown and performance analysis
- ✓ Market Strength reveals momentum and breadth through high-low indicators
- ✓ Use multiple time frames to confirm trends and avoid false signals
- ✓ Market cap filtering helps identify where opportunities or risks are concentrated
- ✓ Combine both tools for comprehensive market analysis before stock selection
👉 Remember: Market analysis tools help you understand the environment before making individual stock decisions. They don't predict the future but provide context for better risk management and timing.