4 Technical Tools to Read Stock Market Charts Like the Pros
Technical analysis searches for clues in price patterns and historical data. Take a look at how you can use these indicators.
What direction is the stock market headed next? Nobody, of course, has a crystal ball. And the market can't converse with you like ChatGPT can, so it can't warn you of trouble ahead or confirm that a bull market is alive and well. There are tools, however, that can help you read the tea leaves and better gauge the market's next move.
Fundamental stock market indicators such as corporate earnings growth and price-to-earnings (P/E) ratios, and economic data such as gross domestic product (GDP), interest rates and inflation, tell only part of the story.
A more complete picture of the market's health includes analyzing visual clues found in Wall Street charts that focus on price action, for example, or market breadth (a measure of how many stocks are participating in a rally or sell-off). The research strategy is known as technical analysis.
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This type of evaluation provides key market intelligence. Technical analysis tells you whether a broad index such as the S&P 500 is in a sustainable uptrend or in a downtrend. It shows whether a stock's price momentum is strengthening or fading. And it reveals potential directional pivots.
"Technical analysis is a framework for identifying what the current market trend is and the likelihood of it continuing," says Adam Turnquist, chief technical strategist at LPL Financial.
Technical analysis provides an alert system for investors
Technical analysis is something akin to an early alert system. Analyzing charts and price patterns can tip you off when leading stocks, sectors (such as white-hot semiconductors) or benchmark indexes are rolling over or breaking out to new highs.
That's particularly important when the stock market is near all-time highs, as it is now, or trading at depressed lows after big downturns, such as the April 2025 swoon following the rollout of President Donald Trump's "Liberation Day" tariff plan.
Technical analysis won't supplant market research based on the fundamentals. Think of it as another tool in your investment toolbox. Arming yourself with this type of market surveillance can help you better understand what's going on underneath the surface of the market and better inform you about its underlying strength.
And you don't need to add an arsenal of indicators to your market routine, either. Asked what his favorite indicators are, Mark Arbeter, a technical analyst and president of Arbeter Investments, says: "Number one, two and three is price action."
Pundits and market noise aside, all known information about the market is reflected in its price movements, say technical analysis adherents. What Arbeter likes to see in charts is higher highs and higher lows with strong trading volume on up days, as that suggests most market players, including big institutional investors, are buying. A bearish sign is when the market is going down and volume is through the roof.
Below, we share some of Wall Street's favorite technical indicators and what they're telling us now about the stock market's prospects. (All data is through May 31.) Although there are a slew of indicators that professional chart readers use, many are wonky, proprietary and hard to replicate. So we'll focus on key indicators that are easy to grasp and track at home.
1. Spot the trend
Trend following is a key aspect of technical analysis. Long-term trendlines — such as the 200-day simple moving average, which tracks the average price of an asset over the previous 200 trading days — are the most useful to follow. Why? They smooth out volatility and provide a key piece of information: whether the trend of an index, sector, fund or stock is up or down.
"The longer the trend line, the more important it is," says Mark Newton, global head of technical strategy at Fundstrat, a Wall Street research firm — and "the more effective it is in keeping investors on the right side of the trend," he adds.
To get a reading on the broad market's health, pull up a three-year chart of the S&P 500 on your online broker's website or a financial site such as wallstreetnumbers.com. Then overlay the 200-day moving average on the chart. If the S&P 500's price is above its 200-day moving average and the line on the chart is upward sloping, it means the market has upward momentum and is in a long-term uptrend. A classic bullish setup is when both the index and the moving average are rising in tandem.
In contrast, a downward-sloping chart with the S&P 500 trading below its 200-day moving average indicates that the broad market is in a downtrend. When stocks lose their mojo, it's not time to bargain hunt because the trend is no longer your friend. "You generally want to avoid stocks in a downtrend," says Adair Rufty, technical analyst at Strategas Research Partners.
What are the charts telling us now? As of May 31, the S&P 500's closing price of 7,580 is above its 200-day moving average of 6,831. So for now, despite daily volatility due to Iran war news and oil and interest rate spikes, the S&P 500 remains in an uptrend.
If there's a negative, it's that the number of stocks in the S&P 500 trading higher than their 200-day moving average is moving lower, says Arbeter. As of the end of May, just 55% were above their average price over the past 200 days, down from a 2026 peak of 69% before the U.S. attack on Iran in late February, according to financial data site Barchart.
Arbeter prefers to see 70% to 80% of S&P 500 stocks trading above their 200-day moving average in up markets. "There are technical cracks," he says. "Overall breadth is not great, and it's not indicative of historical periods when the market just keeps going higher."
You can gain more clarity on the market's technical strength by layering in a shorter-term moving average — such as the 50-day moving average, which is a barometer of near-term momentum.
If the asset or index you are tracking, such as the S&P 500, is trading above both its 200-day and its 50-day moving average, that suggests the market's short- and long-term momentum are both flashing the same positive signal. Good news: Currently, the S&P 500 is above both its 50-day and its 200-day moving average.
One goal of chart-watching is to be on the lookout for divergences, which occur when the price of an asset moves in the opposite direction of a technical indicator. A sign of early trouble, for instance, is when the S&P 500 is hitting new highs but its average price over the past 50 or 200 days begins to weaken, with moving-average lines beginning to slope downward.
A classic technical warning signal is when the S&P 500's 50-day moving average crosses below its 200-day moving average. This divergence is called a death cross. It tells you that the short-term trend has turned bearish, signaling a likely market downturn. As of May 31, the 50-day moving average was 7,058, well above the 200-day's 6,831.
But be on the lookout for signs that the 50-day moving average is in danger of undercutting the 200-day average. "At that point, your antenna should flare up a bit," says Rufty. "Something's changing. It's a point where you should start thinking, Could a topping sequence be happening?"
2. Measure momentum
Simply put, momentum tells you what's working in the stock market and what's not. The 14-Day RSI is a popular technical indicator that tracks pure momentum, flagging stocks that are either soaring or sagging and helping to determine whether they're flashing "buy" or "sell" signals.
The acronym stands for Relative Strength Index. The RSI determines whether an investment is overbought or oversold by measuring the speed and magnitude of price movements.
Here's how it works: The index tracks the momentum of a stock or index according to a formula that includes average gains and losses, usually over the past 14 days. The calculations are plotted as a line graph on a scale from 0 to 100. The higher the number, the stronger the momentum. A reading above 50 suggests an asset has positive momentum, while a reading below 50 indicates downward momentum.
Typically, Wall Street traders use these readings as contrarian signals. The more extreme the reading, the more apt they are to trade on it. In general, RSI levels of 70 and above indicate an overbought condition, suggesting the stock or index has gotten ahead of itself, which could serve as a potential sell signal. Low RSI levels (below 30) indicate an oversold condition, which might indicate a potential entry point to buy a beaten-down asset. A May 31 RSI reading of 74 indicates an overbought market.
From a trading perspective, however, RSI works best when viewed in the context of the market's broader trend. Technical analysts typically give larger weight to longer-term trendlines, such as the 200-day and 50-day moving averages. If a stock, for example, is flashing an overbought RSI reading but the broad market is in an uptrend, as now, that's less concerning than if a stock is overbought and the market is in a downtrend.
On the flip side, if the market is reaching higher highs but the RSI momentum indicator is starting to decline from its peak, that's a bearish divergence, according to Turnquist.
3. Beware of bad breadth
You can get even more insight into the market's health by looking at measures that tell you how broad the underlying strength or weakness of the market is. "Market breadth is really important," says Newton. "Are all sectors going up in unison, or are you starting to see bifurcation?"
Lists of stocks that are hitting new highs and those hitting new lows are a good place to start. If the number of stocks reaching new highs is rising as the market marches higher, that's a good sign, as it tells you there's broad participation in the rally. But if the market is still going up and even hitting new highs but the number of stocks sinking to new lows is rising, that could be hinting at weakness under the surface.
This price data is particularly helpful during market turning points. "It's useful in gauging how flushed a sell-off is or how potent a rebound is," says Rufty. You can get daily new highs and lows from market-data-focused sites, such as The Wall Street Journal.
If you're looking for new highs and new lows over longer periods, such as one month, six months or 52 weeks, you can find that data at Barchart. (A related measure of market breadth is the advance-decline line, which tracks the difference between the number of stocks on, say, the New York Stock Exchange that are advancing each day and those that are declining.)
Craig Johnson, chief market technician for investment firm Piper Sandler, tracks 26-week highs and lows (or six-month readings). He looks at all U.S. stocks, including all 416 industry groups. Currently, he doesn't like what he's seeing.
"The market is hitting all-time highs, and I've got very few groups participating," says Johnson. Less than half (49%) of the stocks were at six-month highs in mid-May. And only 26, or 6%, of the industry groups Johnson tracks were hitting 26-week highs.
Most of the groups hitting new highs were tech-related, meaning the market's gains are concentrated in a single sector. Johnson says he's watching new lows closely. By his count, 21, or 5%, of the industry groups were at new lows, with the bulk of those in consumer-related areas. "When I start seeing an expansion in the number of groups that are making new lows, that is worrisome," he says.
4. Find floors and ceilings
It's also important to monitor how the market is trading around market "support" or "resistance" levels.
Support is a level akin to a floor. "That's where buyers have consistently stepped in to buy a stock or the S&P 500 in the past," says Turnquist. A resistance level acts like a price ceiling; it's where buying has dried up in the past.
You'll often find such floors and ceilings around big, round numbers on a market index. For example, it often takes a few attempts before a broad index can break through a resistance level — the S&P 500 flirted with 7,000 as far back as October 2025 before finally topping that milestone for the first time in April 2026. A breakout above a resistance level is a healthy sign.
Conversely, in the wake of the S&P 500 hitting 7,500 for the first time in mid-May, market technicians are watching for signs that the broad market is beginning to weaken. The first key support area to watch is the 7,150 level on the S&P 500, according to Arbeter. But he says he'd be more worried if the index breaks below the range of 6,800 (around its 200-day moving average) to 7,000 (the most recent breakout zone for stocks). "That would be a major concern," says Arbeter.
As you eye those benchmark levels, consider pulling up some stock charts to read Wall Street's tea leaves. With the help of technical analysis, Fundstrat's Newton says, "you oftentimes can find very important turning points."
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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