Using the Bullish-Bearish Indicator to Spot a Potential Market Bottom or Top

There are several Psychological Market Indicators investors can use to help them determine when a Market Bottom or Top is nearing. One of the more important ones is the Bullish-Bearish Indicator which shows the % of Bullish and Bearish Investment Advisors. This data is available from Investors Intelligence and is also published by Investors Business Daily as well.
Generally when there is a large difference ( >30%) between the % of Bullish and Bearish Investment Advisors there is an excessive amount of Bullishness in the market which usually is indicative of a nearing top. The chart below compares the S&P 500 versus the % difference between the Bullish and Bearish Investment Advisors since 1998. As you can see when the % difference between the Bullish and Bearish Investment Advisors is >30% the S&P 500 has generally made a top and then reversed strongly to the downside. Some examples include last Summer (point A), the early part of 2001 (point B), the Spring of 2000 (point C), the early part of 2000 (point D), the Summer of 1999 (point E) and even further back in the Summer of 1998 (point F). Recently the % difference between the % of Bullish and Bearish Advisors reached near 30% again in January (point G) which was a warning sign that the S&P 500 was likely nearing a top after rallying strongly for three months.


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