Another Contrarian indicator I like to look at is the Bullish-Bearish Sentiment.
When Bulls get to optimistic and Bears get to pessimistic a wide divergence
develops between the two which could signal a nearing top followed by a sell
off. Meanwhile when the Bears get overly pessimistic and the Bulls become
less optimistic this allows for the two to converge signaling a potential bottom
may be nearing followed by a significant rally to the upside. The chart below shows the Bullish-Bearish Sentiment versus the S&P 500 Index.
As you can see over the past several years when the % of Bullish Investment
Advisors (red line) has been equal to or less than the % of Bearish Investment
Advisors (blue line) generally the S&P 500 has made a bottom and reversed
strongly to the upside (points A, B, C, D, E, F and G).
Meanwhile when the % of Bullish Investment Advisors has been considerably
greater than the % of Bearish Investment Advisors then this has generally led to
a nearing top followed by a sell off (points H, I, J, K, L, M, N and O).
The next indicator we will look at is the Volatility Index (VIX). Please click on the link below to see this indicator.
|
