Psychological Market Indicators Can Help

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Psychological Market Indicators Can Help

There are several other indicators which may provide further data about the trend of the general market. The percentage of investment advisors that are bearish is an interesting measure of investment psychology. Near bear market bottoms, the great majority of advisory letters will be bearish, and near market tops, the majority will be bullish.

In other words, the majority is almost always wrong when it is most important to be right. The issue here is a question of degree. You cannot blindly assume that because the last time the general market hit bottom and 65% of investment advisors were bearish that the next time the advisors' index reaches the same point, a major market decline will be over.

One of the great problems with indexes that move counter to the trend is that you always have the question of how bad it can get before everything finally turns. In this line, most amateurs in the market follow and believe almost religiously in  verbought/oversold indicators.