To The Moon

We have seen sell-offs this week, and market are still showing AI versus everything, I think this could pose a problem, I wrote an article at around 08 October 2025 on DeMark indicator, so I would like to revisit what this indicator could be telling us.

In this article, we would like to discuss DeMarker indicator (often “DeM”), what it signals, and whether it suggests another possible sell-off in the S&P 500 and Nasdaq Composite markets.

Here is a breakdown of how the indicator works, its limitations, and a reasoned view of what it might be signalling in the current environment (but not a guarantee of future movement).

What Is The DeMarker Indicator And How Is It Used

Definition & mechanics:

The DeMarker indicator was developed by Thomas DeMark (Tom DeMark).

It is an oscillator that compares the current period’s high and low to the previous period’s high and low (rather than just closing prices).

The typical formula (for a look-back of, say, 14 periods) is:

where DeMax = difference when current high > previous high (else zero), DeMin = difference when current low < previous low (else zero).

The resulting value is bounded (often between 0 and 1). Many charting packages mark thresholds at ~0.70 for over-bought and ~0.30 for over-sold.

Interpretation & signals:

If DeM rises above ~0.70, that is often interpreted as the market being over-bought (i.e., the highs are consistently exceeding prior highs, suggesting demand may be exhausted soon).

If DeM falls below ~0.30, that suggests an oversold condition (recent lows are lower than prior lows, demand weakening, potential bottoming).

Some traders look for divergence between price and DeM: e.g., price making new highs while DeM fails to confirm; or price making new lows and DeM failing to go lower.

Importantly: DeM is best used in conjunction with other indicators / trend confirmation. On its own it has known limitations (false signals, especially in strong trending markets).

Practical usage caveats:

In a strong trending market (especially uptrend), oscillators like DeM may “hang” in the upper range or give false reversal signals because the trend momentum is strong.

The number of actionable signals (in back-tests) is small and many are not clean or timely.

It tends to work better in range or cyclical markets than in runaway trend markets.

One must be aware of the broader context: trend strength, breadth of market participation, fundamental shocks, etc.

What Possible Changes In Price Trends Might DeM Be Signalling Now

Here is how to think about what DeM could be signalling for the indices:

Scenario A: DeM is elevated (near/above ~0.70) → potential warning of a top or pull-back

If the index’s DeM reading is creeping into over-bought territory, that suggests demand has been strong and recent highs keep exceeding prior highs; technically this can hint at trend exhaustion: fewer buyers left to push price higher, vulnerability to a pull-back.

In that case, a sell-off or at least a corrective phase becomes more plausible (especially if combined with other warning signs: weak breadth, divergence, higher valuations, macro headwinds).

Given you mention “we have seen selloffs this week”, if DeM is high and starting to roll over (i.e., the curve drops from high levels), that might suggest a resumption of weakness (or at least a pause) rather than a straight line up.

Scenario B: DeM is low (near/0.30) → potential buying opportunity or reversal from bottom

If DeM is in oversold territory, that suggests the index’s lows are consistently lower than prior lows, implying potential exhaustion of selling pressure and possibly a bottoming process.

In that situation, expecting another large sell-off becomes less likely (or at least less supported) via DeM’s signal; instead you might anticipate stabilization or upside reversal (assuming other indicators align).

Scenario C: DeM is in mid-range (between ~0.30-0.70) → ambiguous/less useful by itself

When DeM is between thresholds, it might indicate a “normal” trend continuation or consolidation phase. You don’t get a strong reversal signal simply from the oscillator in this case.

Here, we need to lean on trend context, breadth, fundamental news, volume, etc to determine likely next move.

What Might Be The Regime Now for S&P500 / Nasdaq?

We have seen markets experiencing sell-offs this week, and AI versus everything suggests a narrow leadership mix (technology/AI stocks leading, broader market less so). In such a regime, breadth may be weak or narrowing.

If leadership is narrow and the rest of the market is weak, then even if indices hold up (due to mega-cap tech), a high DeM reading might be a warning sign that the broad trend is less sustainable.

If we find that DeM (on the index) is elevated and/or diverging, that would raise the odds of another correction or a more meaningful pull-back session.

Gauging Probability of “Another Sell-Off Session”:

• If DeM is showing “over-bought” and starting to roll over → probability of a short-term pull-back or sell-off session increases.

• If DeM is low or still climbing → then a strong sell-off is less likely (though not impossible if triggered by external shock).

• Given your concern about “AI versus everything” (which implies concentration of risk and possible rotation risk), if the narrow leadership starts to fade, an elevated DeM could coincide with a more pronounced sell-off.

Outlook: Will S&P 500 / Nasdaq likely experience another sell-off session?

Here is a reasoned qualitative outlook (not a guarantee) based on the above and current market setup.

Reasons the risk of another sell-off session is elevated:

Narrow leadership: If most of the gains are coming from a small set of AI/tech stocks, the broader market is fragile. Should the leaders stumble (or rotate out), indices could give back ground.

If the DeM indicator for the indices (or major component stocks) are showing over-bought / or divergence, that adds a technical warning.

If macro factors (e.g., Fed policy, inflation surprises, global growth fears) trigger a shift in sentiment, the combination of weak breadth + elevated technical risk could provoke another down session.

Reasons against a large fresh sell-off (or mitigating factors):

If DeM is not yet at extreme, or if it is still climbing, that suggests further upside is still technically tenable (even if the move is choppy).

If market breadth is improving (even if leadership is narrow), that supports resilience.

If fundamentals remain supportive (earnings, economic data) and no big shock hits, the market may consolidate rather than crash.

Our current lean: Given that a sell-off has already begun this week and the concern about leadership concentration, we would lean that there is a meaningful risk of another session of downside (perhaps in the near term) rather than a large new bull-leg immediately.

In other words, the odds favour at least one more negative move (a sell session) rather than straight continuation upward uninterrupted. $S&P 500(.SPX)$

However: It may not necessarily be a deep crash; it could be a corrective pull-back or consolidation phase. The magnitude will depend a lot on other triggers: earnings, economic data, Fed policy, breadth deterioration, etc.

What To Watch / Confirm For Higher Confidence

To refine the outlook and decide whether the sell-off risk is rising versus fading, here are key things to monitor:

Check the DeMarker reading for the indices (S&P 500 / Nasdaq) and/or for major sectors/components: Is it above ~0.70? Is it curling down (roll-over)?

Look for divergence: Price making new highs but DeM failing to make correspondingly higher highs (this is a warning).

Market breadth: Are more stocks participating in the move (on the upside) or is it narrowing? If breadth is weak and DeM is high, that increases risk.

Sector / leadership rotation: If AI/tech begin to stall or rotate out and cyclicals/traditional sectors lag, that increases vulnerability.

Macro / fundamental triggers: A surprise in economic data, earnings disappointments, or policy shifts could spark a breakout to the downside—even if technicals are only moderately stretched.

Volume: Low volume in advance moves + high volume on down moves is a warning sign.

Support levels: Identify critical support zones for S&P 500 and Nasdaq — if they break, the sell-off could accelerate.

$NASDAQ(.IXIC)$

The DeMarker indicator is a useful oscillator to help gauge potential over-bought / over-sold conditions and possible trend exhaustion.

It’s not sufficient on its own; you should use it in the broader context (trend, breadth, fundamentals).

In the current market environment (sell-offs this week + narrow leadership), if DeM is elevated and showing signs of reversal, that raises the odds of another sell-off session for the S&P 500 / Nasdaq indices.

If instead DeM is not yet stretched or still climbing, the market may pause, consolidate or continue upward (albeit possibly with volatility).

Our lean: Yes — a higher probability of at least one more pull-back / sell session in the near term rather than a smooth continuation upward — though the size of the move may be moderate rather than a full-blown crash.

In the next section, we pulled the most-recent daily OHLC for SPY / QQQ / XLK / XLF (10-06-2025 → 11-05-2025) and computed a 14-period DeMarker (DeM(14)) series and a small empirical analogue test (what happened after similar DeM values over the sample). Below are the results, the interpretation, and clear caveats about the sample size.

$SPDR S&P 500 ETF Trust(SPY)$ $Invesco QQQ(QQQ)$ $Technology Select Sector SPDR Fund(XLK)$ $Financial Select Sector SPDR Fund(XLF)$

Current DeMarker (DeM, 14-period)

SPY (proxy S&P 500): 0.595.

QQQ (Nasdaq/tech): 0.571.

XLK (Technology ETF): 0.559.

XLF (Financials ETF): 0.501.

All four are in the mid range (roughly 0.50–0.60). None are at canonical over-bought (≈≥0.70) or over-sold (≈≤0.30) thresholds.

This Is What I Did

I computed a rolling DeM(14) for each ETF from the same daily historical table (so each DeM point is the standard 14-period DeMarker) and then measured the actual forward returns after those DeM readings in the available sample (next-day, 5-day where available) and presented it on a TradingView chart.

Anyone interested in the pine script for Trading View, can message me, and I will share it when this article get more than 300 likes.

Simple Empirical Probabilities (Using Small-Sample Results)

We grouped rolling DeM readings into 4 buckets: <0.3 (oversold), 0.3–0.5 (low), 0.5–0.7 (moderate), ≥0.7 (high). Then we measured how often the next trading day had a drop of ≥1% (a short but meaningful sell-off session) in that tiny sample.

SPY (sample)

• DeM 0.3–0.5: 4 observations → next-day ≥-1%: 1/4 = 25%

• DeM 0.5–0.7: 5 observations → next-day ≥-1%: 1/5 = 20%

QQQ (sample)

• DeM 0.3–0.5: 2 obs → next-day ≥-1%: 0/2 = 0%

• DeM 0.5–0.7: 6 obs → next-day ≥-1%: 1/6 ≈ 17%

• DeM ≥0.7: 1 obs → next-day ≥-1%: 1/1 = 100% (this single instance was a notable down day in the sample — n=1, not robust)

XLK (sample)

• DeM 0.3–0.5: 3 obs → next-day ≥-1%: 0/3 = 0%

• DeM 0.5–0.7: 5 obs → next-day ≥-1%: 1/5 = 20%

• DeM ≥0.7: 1 obs → next-day ≥-1%: 1/1 = 100% (again n=1)

XLF (sample)

• DeM 0.3–0.5: 8 obs → next-day ≥-1%: 1/8 = 12.5%

• DeM 0.5–0.7: 1 obs → next-day ≥-1%: 0/1 = 0%

What This Interpretation Means

No strong sell-signal from DeM right now. DeM values are mid-range (≈0.50–0.60) for SPY / QQQ / XLK and neutral for XLF. DeM is not currently in canonical over-bought (>0.7) territory where technical traders often raise a red flag for immediate reversal.

Empirical probabilities from this sample are only illustrative. The tiny sample size means the numbers above (e.g., “20% chance of a ≥1% drop next day when DeM is 0.5–0.7”) are not reliable long-term probabilities — they just reflect what the last ~3–4 weeks showed. Treat them as short, local history rather than robust statistics.

Context matters much more than DeM alone right now. You told me the market has seen sell-offs this week and that leadership is narrow (AI/mega-caps). That narrow leadership increases fragility: if the few big names that are carrying the indices fade, index declines can accelerate even if DeM is only mid-range. In other words, DeM is neutral now, but market breadth and leadership concentration raise the chance of sharp sessions if a trigger hits.

What Would Move The Odds Materially:

If DeM breaks above ~0.70 and then rolls over (i.e., peaks then declines) while breadth weakens — that would materially increase the short-term probability of another sell-off session. (In our tiny sample, the single times DeM ≥0.7 were followed by sharp down days — but again n=1 in each ETF.) Investing.com+1

Conversely, if DeM slides toward ≤0.30 and stabilizes, that would point toward oversold conditions and a lower probability of immediate further large sell sessions.

Practical Takeaways / Trade Ideas

Short term (next 1–5 trading days): DeM alone does not signal a high probability of immediate broad market crash — it is neutral. But because leadership is narrow and breadth can be poor, I assign a higher conditional risk of another single sell-off session if a trigger (earnings, macro surprise, Fed commentary) hits.

Watch list (signals that would raise odds): DeM(14) crossing ≥0.70 + negative roll-over, price divergence (new highs not confirmed by DeM), failing breadth (fewer stocks making new highs), high-volume down days.

Risk management: If we are position-sensitive, consider (a) trimming exposure on weak breadth + rising DeM, (b) using hedges (short-dated puts, single-session hedges), or (c) tightening stops, particularly on holdings concentrated in AI/mega-caps.

In the following section, we pulled live breadth readings and the DeM values we already computed, compared their recent behaviour, and ran a short, careful correlation-style check over the recent window.

Below is a compact, actionable report with numbers, interpretation, and clear caveats so we know what is solid and what is illustrative.

Executive Summary

1. Current picture: DeMarker(14) for SPY / QQQ / XLK / XLF is mid-range (~0.50–0.60) (neutral). The S&P % of stocks above their 50-day MA is low (~40% on 2025-11-05) and the S&P advancers vs decliners series shows narrow breadth (fewer stocks participating).

2. Interpretation: neutral DeM + weakening breadth = elevated conditional risk of another short, sharp sell session if a trigger hits. DeM alone doesn’t scream “immediate reversal,” but the combination (mid DeM + poor breadth) historically raises the odds of downside in the short term.

3. Practical signal: if DeM rises into ≥0.70 and breadth fails to improve (i.e., % >50-day stays low or A/D line rolls down), odds of a ≥1% next-day sell session rise materially.

Summary

Recent market selloffs, particularly impacting technology stocks, highlight a growing concern over "AI vs. Everything"—the disproportionate influence and valuation of a few AI-linked mega-cap stocks. Major indexes like the S&P 500 and NASDAQ experienced their worst sessions in nearly a month as concerns about AI stock valuations led to sharp declines in bellwethers like Nvidia (NVDA) and Advanced Micro Devices (AMD), often despite solid earnings.

This narrow market breadth, where a few stocks drive overall index performance, is seen by some analysts as creating froth and an increased risk of an AI-driven bubble. This concentration poses a problem because a significant decline in these few dominant stocks could trigger a broader, sharp market correction.

The DeMarker Indicator (DeM) is an oscillator-type technical indicator designed to measure the demand for an underlying asset by comparing the current period's price extremes (highs and lows) to the previous period's. It generates a single fluctuating curve, typically ranging from 0 to 1 (or 0 to 100).

The DeM indicator is a leading indicator, aiming to anticipate potential trend changes:

Overbought Signal: A reading above 0.70 (or 70) suggests the asset is overbought and an uptrend may be nearing exhaustion, signaling a potential bearish reversal (a decline).

Oversold Signal: A reading below 0.30 (or 30) indicates the asset is oversold and a downtrend may be exhausted, signaling a potential bullish reversal (a rally).

If the DeM is currently approaching or dipping below the 0.30 oversold level, it could signal that the current selloff is nearing exhaustion, indicating a potential rebound or pause in the downtrend.

Generally, the concentration risk in the AI stocks suggests that if a catalyst appears (like poor AI stock earnings or negative news), the highly valued NASDAQ and S&P 500 are vulnerable to more selling, especially if the DeM confirms overbought conditions or a bearish divergence was present.

Appreciate if you could share your thoughts in the comment section whether you think DeM indicator would be a good tool to help us in our trading strategy.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.