Negative demand in financial markets refers to a sustained decline in investor interest, leading to falling prices and reduced liquidity. It can be measured through several key indicators. Trading volume is a primary metric; unusually high selling volume compared to buying activity suggests strong negative demand. Price trends also play a role; consistent lower highs and lower lows in stock charts indicate persistent selling pressure. Bid-ask spreads widen during negative demand, as fewer buyers are willing to match sellers, increasing transaction costs. Short interest ratios reveal how many investors are betting against a stock, with rising short positions signalling bearish sentiment.
Additionally, put-call ratios in options markets reflect increased demand for put options (bearish bets) over calls (bullish bets). Order flow data from institutional trades can show whether large investors exit positions, further confirming negative demand. Sentiment analysis tools, such as news sentiment algorithms and social media tracking, gauge market psychology, with a surge in negative headlines often preceding or accompanying downturns. Finally, economic indicators like declining GDP growth, rising unemployment, or falling corporate earnings can foreshadow or reinforce negative demand. By analysing these factors, traders and analysts assess the severity of negative demand and anticipate potential market reversals or further declines.