The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

Sentiment Indicators and Contrary Opinion 

commodity trading advisers. Generally, a rising percentage indicates a bullish

market while a declining one reflects a bearish market, except at extremely high

or low readings, which then turns the Bullish Consensus into a contrary indica-

tor where extreme highs indicate the potential of a market top forming, and vice

versa.

Consensus bullish Sentiment Index

The Consensus Bullish Sentiment Index reflects the published recommendations,

analysis, and advice from brokerage house analysts and independent advisory

services covering 32 major markets. Just as for Market Vane’s Bullish Consensus,

extremely high or low readings indicate the potential of a market top or bottom

forming. The Consensus Bullish Sentiment Index is also published by Barrons.

Other Indicators

There are also other measures of sentiment like cultural sentiment indicators

which include corporate spending, war, rumors of war, changes of feminine fash-

ion, and so on. This also includes media and magazine headlines. It is generally

observed that media and magazine headlines are the most bullish at market tops

and most bearish at market bottoms. Therefore these indications may offer fur-

ther evidence of an impending market reversal. Unfortunately it is difficult to

quantify such indications.

23.5 Chapter Summary

We have seen how various sentiment indicators provide a fairly reliable indication

of potential market bottoms and tops, largely via the underlying behavior of the

under‐informed. We must remember that these indicators are most reliable when

reading are at extreme or historically significant levels. Every practitioner should

therefore include sentiment indicators as an indispensable part of their technical

toolkit.

Chapter 23 Review Questions

1. Describe what is meant by the term market sentiment.


2. What is the difference between flow of funds and poll‐based sentiment indica-
   tors?


3. Explain how you would use a flow of funds‐type sentiment indicator to gauge
   market tops and bottoms.


4. How would you distinguish between the well-informed and the under-
   informed?


5. Describe the cycle of emotions and reactions for both the well-informed and
   under-informed at various stages of a market cycle.


6. How does the Put‐Call Ratio differ from the VIX?


7. What is meant by a contrary indicator?


8. Why are price‐based indicators sometimes a proxy for sentiment indicators?