What is heavy?
Heavy is a description of a market that is showing difficulty moving forward and is trending down.
A heavy market can be a manifestation of investors’ uncertainty about short-term direction and a sign that the market is reaching the top. It can also be characterized by a shortage of buyers, many of whom may prefer to remain on the sidelines until the uncertainty subsides. This market is also sometimes called a heavyweight market.
A heavy market could be vulnerable to collapse if economic conditions and / or uncertainty worsen. A situation like this could exacerbate the imbalance between buyers and sellers of stocks.
As such, a heavy market could be interpreted as a sign or a precursor to a possible steep decline in the short to medium term. There may be indications of a heavy market in aggregate numbers (eg, bid and ask volumes of the major indices), but often “heavy” is something experienced traders can feel. It is more of an intuition than a quantification. It can be said that a group of stocks or a market that does not trade higher on multiple occasions is heavy.
Market direction can also change rapidly with the release of supportive economic data, positive earnings surprises from leading companies, or renewed investor sentiment. Therefore, what may seem heavy to traders, making them cautious, could be reversed in a new stage in a bull market.
Investors sensing that the market is heavy can act to lock in profits, cover long positions, or even sell short if they are bolder. Those who advocate for investors to remain fully invested at all times simply ignore the signs of heaviness in the market. Since market timing is notoriously difficult, financial planners generally advise that the average saver / investor continue to add funds to their stock holdings, regardless of the perceived “weight” of the market.
Example of a heavy market
Let’s say the S&P 500 is trading near 2,500 today, and for the next several weeks the index tends to decline day after day. Looking at the index chart, you see the appearance of a heavy market because prices are not bouncing.
Investors looking to buy stocks at a discount will receive a heavy market. This allows the investor to own shares at a lower price, with more upside potential than buying them at a higher price.
What is a heavy market?
A heavy market occurs when only a handful of companies account for a relatively large percentage of the market capitalization of a given index. A very heavy market is particularly vulnerable to idiosyncratic risk; that is, the risk that is endemic to a specific group of assets.
What is the difference between a heavy market and a bear market?
A heavy market has a tendency to decline and has a hard time moving forward. Meanwhile, a bear market experiences prolonged declines. Typically, a bear market occurs when prices drop 20% or more from recent highs.
Is the S&P 500 a very heavy market?
In June 2021, the S&P 500 is both top-heavy and tech-heavy.
The combined market valuation of just five big tech companies – Apple, Microsoft, Amazon, Alphabet and Facebook – comprises more than 20% of the S&P 500.