Sentiment Indicators and Contrary Opinion
participants is inordinately pessimistic or optimistic is to see if the sentiment‐indicator
readings are in proximity to historically extreme levels. It also behooves the practi-
tioner to confirm extreme readings with that of other sentiment indicators.23.2 Price‐Based Indicators versus Sentiment Indicators
Very often, price‐based indicators and oscillators tend to signal historically over-
bought and oversold conditions in sync with extreme sentiment readings. Hence,
appropriately tuned oscillators based on market behavior may be used as a proxy
for markets where no sentiment data is available for scrutiny. In Figure 23.3, we
observe a cycle‐tuned stochastic oscillator pinpointing potential bottoms in Silver,
which coincides with readings at and above the historically extreme readings on
the Chicago Board Options Exchange (CBOE) Options Total Put‐Call Ratio senti-
ment indicators.fIgure 23.3 Convergent Signals from a Cycle‐Tuned Stochastic Oscillator and the
CBOE Options Total Put‐Call Ratio Indicating Potential Market Bottoms.
Courtesy of Stockcharts.com