Price Headley's BigTrend Watch
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Price Headley's BigTrend Watch
For regular readers of the Daily TrendWatch, you know that a large part of our trend
identification is based on investor sentiment. If you're asking yourself "Does that
sentiment stuff really work?", then you're not alone. It's difficult to disregard all
that we've been taught about price trends and momentum. But it's also difficult to
disregard the results that these sentiment indicators can give you. In fact, the
gains to be made from correctly spotting a reversal are far greater than the gains to
be made from buying in the middle a trend.
One of our key sentiment indicators is the Consensus Index. It's simply a measure of
investor bullishness (or lack of). But here's the contrarian twist - we're bearish
when the consensus is highly bullish. And were very bullish when the consensus
bullish reading is at a low. Why is that? We've found that bullishness peaks right
about the time the market tops out, which is a great time to sell, or be bearish.
Conversely, when investor opinion is very pessimistic, that often signals that we're
at a market bottom, and you should start buying before the rally.
So how do we spot the extremes in the Consensus Index? One of the methods is a
Bollinger Band plot around the index line. In the chart below, in the lower portion,
we've plotted the Consensus Index against the Nasdaq Composite. The circled areas are
points in time where bullishness was so weak it actually touched the lower Bollinger
Band line. The first two times this happened, a strong rally followed, lasting three
to four weeks at least. The third time this happened is why I bring this up today -
it happened just last week.
Why does this work so well? Think of it like this - people act on how they feel. If
they are bullish, they will buy stocks. As more and more people become bullish and
buy stocks, the higher prices go, which only incites more and more bullishness in the
Consensus Index. When bullishness peaks, the buying has usually exhausted itself.
Eventually, everybody who was going to be a buyer has bought. That leaves only the
sellers. When the sellers step in, the whole cycle shifts the other direction until
all the sellers are done, and the buying restarts.
Obviously this is an intermediate trend indicator and really can't help you in
day-to-day trading, but it can be a powerful tool in long and short positions.
SUPPORT RESISTANCE
Nasdaq Composite 1440 1480
S&P 500 915 945
Dow Industrials 8740 8940
identification is based on investor sentiment. If you're asking yourself "Does that
sentiment stuff really work?", then you're not alone. It's difficult to disregard all
that we've been taught about price trends and momentum. But it's also difficult to
disregard the results that these sentiment indicators can give you. In fact, the
gains to be made from correctly spotting a reversal are far greater than the gains to
be made from buying in the middle a trend.
One of our key sentiment indicators is the Consensus Index. It's simply a measure of
investor bullishness (or lack of). But here's the contrarian twist - we're bearish
when the consensus is highly bullish. And were very bullish when the consensus
bullish reading is at a low. Why is that? We've found that bullishness peaks right
about the time the market tops out, which is a great time to sell, or be bearish.
Conversely, when investor opinion is very pessimistic, that often signals that we're
at a market bottom, and you should start buying before the rally.
So how do we spot the extremes in the Consensus Index? One of the methods is a
Bollinger Band plot around the index line. In the chart below, in the lower portion,
we've plotted the Consensus Index against the Nasdaq Composite. The circled areas are
points in time where bullishness was so weak it actually touched the lower Bollinger
Band line. The first two times this happened, a strong rally followed, lasting three
to four weeks at least. The third time this happened is why I bring this up today -
it happened just last week.
Why does this work so well? Think of it like this - people act on how they feel. If
they are bullish, they will buy stocks. As more and more people become bullish and
buy stocks, the higher prices go, which only incites more and more bullishness in the
Consensus Index. When bullishness peaks, the buying has usually exhausted itself.
Eventually, everybody who was going to be a buyer has bought. That leaves only the
sellers. When the sellers step in, the whole cycle shifts the other direction until
all the sellers are done, and the buying restarts.
Obviously this is an intermediate trend indicator and really can't help you in
day-to-day trading, but it can be a powerful tool in long and short positions.
SUPPORT RESISTANCE
Nasdaq Composite 1440 1480
S&P 500 915 945
Dow Industrials 8740 8940
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- Mensagens: 2475
- Registado: 5/11/2002 11:27
- Localização: Leiria
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