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The Investors Intelligence Bull/Bear ratio (IIBBR) is a well respected gauge
of overall investor sentiment. Below is the IIBBR chart from May 2005
through May 2009, and the price chart of the weekly S&P 500 index (SPX) with the same
time period. Courtesy of Market-Harmonics and Investors Intelligence.
And when we subtract the two indexes from each other we create
the Investors Intelligence Bull/Bear Spread (B/B Spread) as shown below.
When the B/B Spread is zero, this means that there are an equal number of Bulls
and Bears. For the particular case below, we see that the B/B Spread is
12.5%, telling us that there are 12.5% more Bulls than there are Bears.
One popular way to leverage investor sentiment is to
look for bullish or bearish divergence. For example, note how the % of
bulls were dropping and the % of bears were climbing from Nov '05 through
May'06, as noted by the trend lines drawn. During this time period
investor sentiment was becoming more and more bearish, even though the SPX was
continuing to climb; and then the SPX sold-off in June '06. Bearish divergence can be helpful
to time when to enter and exit the
market.
Another way to utilize investor sentiment data is to take the
contrary viewpoint and look for extremes in either bullish or bearish sentiment.
Note how the bullish sentiment peaked in Sep '07 at about 62%, which represented the top of the market in Oct 2007. For
more information on the IIBBR, please visit
http://www.investorsintelligence.com/x/default.html.
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