$$ Other Sentiment Indicators

Besides the put-call ratio, I look at a couple of other sentiment indicators.  The American Association of Individual Investors (AAII) polls its members once a week and asks whether they are bullish, bearish or neutral on the stock market for the next six months.  

Like the put-call ratio, the AAII survey is useful for identifying extreme greed at tops and fear at bottoms.  Consider that on August 21, 1987, 66% of AAII members were bullish while only 6% were bearish.   Or January 6, 2000 when 75% were bullish to 13% bearish.  Contrast March 5, 2009 when 70% were bearish and 19% were bullish.

I also subscribe to Market Vane.  They publish the "Bullish Consensus" which is compiled daily by tracking the buy and sell recommendations of leading market advisers and commodity trading advisers.  As such, the Bullish Consensus tracks "market sentiment" as opposed to public sentiment.  Market Vane covers 36 futures markets, including:

Gold

Silver

Platinum

Copper

S&P 500

Nasdaq 100

Light Crude Oil

Natural Gas

Treasury Bonds

10-Year Treasury Notes

US Dollar Index

The markets are ranked from 1% to 100% in terms of bullishness.  Like AAII and the put-call ratio, I look at extreme bullishness and bearishness on Market Vane.  For example, on April 29 the NASDAQ was rated just 3% less bullish than its two-year high Bullish Consensus.  QID (the double inverse NASDAQ ETF) closed on April 29 at $15.35.  By May 6, QID traded over $20 a share.

I also use traditional divergence analysis on the Market Vane Bullish Consensus charts.  For example, if price is trending higher but Bullish Consensus cannot make higher highs, this is an indication that a correction is due.