Consensus Indicators
Consesnsus indicators are very popular among preofessional traders, in USA they have two services "Market vane" and "Investor intelligence" which conduct weekly polls and document the results for their subscribes does anyone know of a similar service for the Indian markets?
I would also like to quote from a book I am currently reading called "how i trade for a living" by Gary B. Smith, Mr. Smith started with $2000 and had turned it into over a miilion dollars he actually trades ONLY his own account and is not a guru or lectureer. He says Consensus indicators are among his most valued (he dosen't look at technical indiactors other than trin). Anyway I'd like to quote a passage from his book
Quote:
Investors Intelligence
Investors Intelligence is the oldest of the sentiment-monitoring services. Investors Intelligence takes a weekly poll of over 130 investment advisory services, breaking down the results into a percentage of bulls, bears, and
those who are bullish but are expecting a correction. The survey results are available each Wednesday at 11:00 A.M. eastern time through a pay-per-call number. 19 These results are also made available on CNBC, usually
during the 11:00 to 12:00 A.M. program on Wednesdays.I have been following the Investors Intelligence sentiment poll since 1985. Its accuracy in calling tops and bottoms was suspect during 1985, 1986, and much of 1987. Since mid-1987, though, it's been a different story. Nearly every major top and bottom since that time has been accompanied by extremes in optimism and
pessimism in the Investors Intelligence sentiment survey. In fact, it was thanks to Investors Intelligence that I was able to completely sidestep not only the crash of 1987, but the carnage leading up to the crash. There are no precise rules for interpreting the Investors Intelligence sentiment survey. Since 1995, I've looked upon a series of two to three consecutive weeks of bullish readings in the 50 percent to 55 percent range, combined with bearish readings between 25 percent to 30 percent, as a warning of trouble ahead for the market. Bearish readings below 25 percent, with bulls above 50 percent, have invariably led to market declines. There is also cause for concern when the percentage of bullish advisors minus that of bearish advisors exceeds
30 percent. This net bull indicator was developed by John Bollinger, of Bollinger Capital Management,20 and flashed a timely sell signal at the market top in July 1998. It's not just the extremes in sentiment that are relevant, but the lack of movement toward these extremes in the face of rapidly rising or falling prices. A classic example of the latter phenomenon occurred in 1995. Stocks began rising in January of that year and then went ballistic in an almost straight shot through mid-August. Yet during the first several months of that meteoric rise, bullishness among advisory services barely budged. In
periods such as this when sentiment doesn't rise to match the rise in stock prices, you can expect even further gains in the market. As a short-term trader, I am primarily interested in only the week-to-week changes in the Investors Intelligence poll. Some analysts, however, like to smooth out these weekly percentage changes with a moving average. Marty Zweig, in Winning on Wall Street, 21 and Norman Fosback, editor of the Market Logic
newsletter, advise making a calculation of bulls divided by the total of bulls plus bears and plotting that percentage on a 13-week moving average. Fosback considers readings over 75 percent as excessive optimism
and possible areas for market tops, and readings below 40 percent as excessive pessimism and areas for market bottoms. However, these levels are never seen anymore and my suggestion would be to use a shorter
smoothing period such as four to six weeks. The best analysis I've seen on the data from the Investors Intelligence surveys are in Jeremy Siegel's Stocks for the Long Run.22 Siegel took the weekly readings of bulls as a percentage of bulls over bears (as previously described) and compared the results with the returns on stocks over the following three-, six-, nine-, and 12-
month periods. He found a strongly predictive content to the sentiment index, particularly over the 3-, 9-, and 12-month periods.
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Another consesus indicator he heavily relies on is Public to specialists shorts, I quote
Quote:
Public/Specialists Shorts
My favorite sentiment indicator from the NYSE Members Report is the public/specialist short sales data. If you find ratios useful, divide the number of short sales of the public by that of the specialists to get the
public/specialist short sales ratio. From the data in Table 9.1, the short sales ratio for the week ending December 11, 1998, would be .98. Prior to the mid-1990s, the public rarely shorted at numbers above those of the specialists. One reason for this is that specialists are frequently required to short stocks to match buy and sell orders. The other more
important reason specialists short in greater amounts than the public is that shorting is considered a professional activity and more a function of the sophisticated, smart money. From the mid-1980s to the mid-1990s, one of my integral trading tools was to get aggressive on the long side whenever the public increased their shorting as compared to the specialists. The rare times they shorted above the specialists on a weekly basis proved especially profitable. This rare phenomenon occurred only once in 1985. This was in early November, right before a 10 percent surge in the Dow over the following six weeks. I fully participated in that rally and it was solely because of the public/specialist indicator. From that point forward, it became one of my most indispensable indicators. It wasn't until two years later, in November 1988, that the public again shorted above the specialists on a weekly basis. At that time, another one of my favorite indicators, advisory sentiment (discussed later) was at extremely pessimistic levels. So I again became very aggressive on the long side and the market rallied strongly through the first quarter of 1989. I repeated this strategy many times when the public shorts went
above those of the specialists and nearly always made above-average profits.
The real worth of the public/specialist indicator became evident during the summer of 1994 when a neverbefore- seen phenomenon began unfolding. Beginning in August, and for the first time in the history of the
New York Stock Exchange, the public began shorting on a nonstop weekly basis in amounts above those of the specialists. This told me something very big was brewing in the stock market. In late 1994, not only was there a major buy signal from the public/specialist indicator, but many of the other sentiment indicators went into buy mode. I knew a huge rally was imminent. All I needed was confirmation from the market in the form of rising prices.
The initial buying surge commenced in January 1995. Yet most analysts and newsletter writers remained bearish throughout the month. Because of poor action in advancing issues versus declining issues and new highs versus new lows, the bearish seers thought the move was simply a bear market rally. Not once did I see any mention from these so-called experts of the historically bullish readings of the public/specialists short selling activity. But most shocking was the way that, even after prices began rising, the public continued week after week to short above the specialists. This
type of skepticism after a period of rising prices indicated the bull run had much further to go. This unprecedented public shorting went on each and every week during 1995 and 1996, and through June 1997. There were even a few weeks during that period when the public shorted at levels above those of the members—something I never thought I would live to see. I can think of no other technical indicator that not only foretold the great bull market of the late 1990s, but never wavered in its accuracy as prices continued to soar.
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My question is where can this info be found for indian markets, the only publications i know of are DSJ and Capital markets but they data banks are not very detailed.
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8th June 2007, 03:40 PM
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