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Technical Analysis

Technical Analysis

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Published by: acharyadas on Feb 13, 2008
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12/04/2013

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Overview

Each week a poll of investment advisors is taken and published by Investor's Intelligence
of New Rochelle, New York. Investment advisors are tracked as to whether they are
bullish, bearish, or neutral on the stock market. The Bull/Bear Ratio shows the
relationship between the bullish and bearish advisors.

Interpretation

The Bull/Bear Ratio is a market sentiment indicator. Dr. Martin Zweig sums up sentiment
indicators in his book Winning On Wall Street by saying, "Beware of the crowd when the
crowd is too one-sided." Extreme optimism on the part of the public and even
professionals almost always coincides with market tops. Extreme pessimism almost
always coincides with market bottoms.

High readings of the Bull/Bear Ratio are bearish (there are too many bulls) and low
readings are bullish (there are not enough bulls). In almost every case, extremely high or
low readings have coincided with market tops or bottoms. Historically, readings above
60% have indicated extreme optimism (which is bearish for the market) and readings
below 40% have indicated extreme pessimism (which is bullish for the market).

Example

The following chart shows the Bull/Bear Ratio and the S&P 500.

"Buy" arrows were drawn on the S&P 500 when the advisors were extremely bearish and
"sell" arrows were drawn when advisors were extremely bullish.

Technical Analysis from A to Z
by Steven B. Achelis

Calculation

The Bull/Bear Ratio is calculated by dividing the number of bullish advisors by the
number of bullish plus bearish advisors. The number of neutral advisors is ignored.

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