The Tell

Two weeks ago every sentiment indicator was giving off a buy signal, except for the Investors Intelligence survey. Yet, everybody decided to focus on the Investors Intelligence survey which was the only indicator of dozens not confirming the buy signal.

I wrote the following on August 22:
I find it telling that the most often quoted sentiment indicator of late has been the Investors Intelligence survey. I find that when the crowd focuses in on a single indicator it usually fails, even if it is a trusty indicator. I believe that will be the case again this time around.

This once again solidifies to me the notion that technical indicators that make the mainstream tend to fail, even if they are usually good indicators.

4 comments:

ChrisS said...

I actually DON'T think it "failed."  The next week (the survey as of Friday 8/19, which was RELEASED on Wednesday 8/24.....dropped down to 40% bulls and 33% bears which is definitely in the bearish camp....and is a "buy" signal).

Tsachy Mishal said...

2 items I would note:

1. Given the drop we had that is not an extreme reading.
2. Everybody stopped mentioning it at that point.

Tsachy Mishal said...

In my book the signal the II survey gave two weeks ago very clearly failed.

Anonymous said...

Good point.  I remember bloomberg tv talking about the RSI as being overbot and mkts kept going higher last year.