Bullish/Bearish Percentages and the DJIA by Christopher C. Cadbury
Curious about how state of mind plays a role in trading? This author has studied investment surveys that detail bullish and bearish states of mind of advisors and investors and he has identified patterns that indicate trading opportunities for stocks and stock indices.
Bullish and bearish percentages of investment sentiment surveys are widely used to predict the direction of the stock market. The readings for a given week are considered to be contrary indicators. A high weekly percentage of bulls or low weekly percentage of bears is regarded as bearish, while a low percentage of bulls or high level of bears is considered to be bullish.
Four organizations have been conducting weekly investment sentiment surveys for the last seven years or longer: Investor's Intelligence, which began weekly service in 1969, the American Association of Individual Investors (AAII), which started service in 1987, Market Vane, which began in 1982, and Consensus, which started service in 1983. I have examined the levels of bullish and bearish percentages before various percentage moves in the Dow Jones Industrial Average (DJIA) and before moves of specific numbers of DJIA points. The bullish and bearish levels that are most discriminating and predictive are those that lead to rallies and declines of 150 points or more. What are the levels for each service?