Investor Sentiment
Investor sentiment is a contrarian stock market indicator.
By definition, the market balances buyers and sellers, so it's impossible to literally have 'more buyers than sellers' or vice versa, although that is a common expression. The market comprises investors and traders. The investors may own a stock for many years; traders put on a position for several weeks down to seconds.
Generally, the investors follow a buy-low, sell-high strategy. Traders attempt to "fade" the investors' actions (buy when they are selling, sell when they are buying). A surge in demand from investors lifts the traders' asks, while a surge in supply hits the traders' bids.
When a high proportion of investors express a bearish (negative) sentiment, some analysts consider it to be a strong signal that a market bottom may be near. The predictive capability of such a signal (see also market sentiment) is thought to be highest when investor sentiment reaches extreme values. Indicators that measure investor sentiment may include:
- Investor Intelligence Sentiment Index: If the Bull-Bear spread (% of Bulls - % of Bears) is close to a historic low, it may signal a bottom. Typically, the number of bears surveyed would exceed the number of bulls. However, if the number of bulls is at an extreme high and the number of bears is at an extreme low, historically, a market top may have occurred or is close to occurring. This contrarian measure is more reliable for its coincidental timing at market lows than tops.
- American Association of Individual Investors (AAII) sentiment indicator: Many feel that the majority of the decline has already occurred once this indicator gives a reading of minus 15% or below.
- Other sentiment indicators include the Nova-Ursa ratio, the Short Interest/Total Market Float, and the Put/Call ratio.
Read more about this topic: Market Trends
Famous quotes containing the word sentiment:
“This was the Eastham famous of late years for its camp- meetings, held in a grove near by, to which thousands flock from all parts of the Bay. We conjectured that the reason for the perhaps unusual, if not unhealthful development of the religious sentiment here, was the fact that a large portion of the population are women whose husbands and sons are either abroad on the sea, or else drowned, and there is nobody but they and the ministers left behind.”
—Henry David Thoreau (1817–1862)