Sentiment Indicators That Can Help You Be a Better Investor
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For an investor, being able to pick out trends is important. You need to be able to get an idea of where the market is going overall, so that you know when to buy and sell. Even for long term investors, it is a good idea to have a general idea of where the stock market is going — especially if you are reaching a point at which it is time to do a little asset re-allocation.
Sentiment indicators can be a good way to help you figure out what the over all trends are with regard to the stock market. These indicators look at what might be called the “mood” of the stock market. These indicators may show you an emerging trend in the market, or they may show you a trend that has been going on so long that it could be time for a reversal. Stock Trading To Go has an excellent list of 5 sentiment indicators (and their explanations) that can help you see what the stock market is doing:
- CBOE Volatility Index (VIX): “Based on option prices, VIX increases when investors buy put options to insure their portfolios against losses. A rising VIX indicates an increased need for insurance. By looking for spikes in the index, we can identify moments where fear has overwhelmed the market, giving us the opportunity to buy stocks at reduced levels.“
- NYSE High/Low: “This is calculated as the number of stocks at 52-week highs minus the number at 52-week lows. When price swings reach extremes, we expect to see spikes in this ratio.“
- NYSE Bullish Percentage: “In a normal market we would expect this metric to range between 40 and 60%, as some strong stocks are offset by weaker ones. When the number travels too far to either extreme, it indicates markets are either overbought (greater than 80%) or oversold (less than 20%).“
- NYSE 50-day moving average: “As with the NYSE bullish percentage, look for extreme readings as an indication that the market is ether overbought or oversold.“
- NYSE 200-day moving average: “This is a measure of the percentage of NYSE stocks trading above their 200-day moving average (MA). The longer the MA the more weight it should be given.“
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[...] now, stock market indicators are pointing to increased fears, especially the VIX. The volatility index is rising, but it does [...]