Investor Sentiment Indicators in Perspective
Jonathan Selsick submits:Investor sentiment indicators are widely used to gain an understanding of investor psychology: Are investors feeling optimistic or pessimistic? These indicators are considered contrarian indicators, meaning that if optimism is at a peak, then the bulls are all fully invested, there are no more buyers, demand for stocks is exhausted, and the market has peaked. The reverse is true for the pessimistic scenario.Sentiment indicators have good predictive ability, but should only be used as secondary confirming indicators, after the fundamentals, momentum, and other economic metrics have been verified. There are many interesting sentiment indicators, some of which are available only by paid subscription. For example, Dow Jones has an Economic Sentiment Indicator, which scans 15 major daily newspapers, using a proprietary algorithm, to seek out and classify certain words or phrases as either optimistic or pessimistic.We looked at monthly data of five commonly-used sentiment indicators that are readilyComplete Story »
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