Trader Sentiments Indicators

Transactional indicators reveal what people are actually doing, as opposed to what they are saying.

There is really no solid transactional information available to the general public.

However, technical analysts can look at customer activity in cash accounts (more conservative) versus margin accounts (more aggressive). They also examine business on the NYSE (more conservative) as compared with the Nasdaq market (more speculative).

The attitudes of traders (short-term-oriented market participants) are also important sentiment indicators. The measures of trader opinion are often contrarian: When traders are excessively bullish, it portends the late stages of an advance; when traders are too bearish, technicians usually interpret it as a bullish signal. Trader sentiment can be gauged with these measures:

Put/call ratios

(put volume relative to call volume as reported by the Chicago Board Options Exchange, or CBOE). Since technical analysts make the assumption that shorter term- oriented equity participants tend to be wrong at turning points, they expect to see high put/call ratios at market bottoms and low put/call ratios at market tops. In addition to total put/call volumes, technical analysts look at index options and equity options separately. The majority of index option activity occurs in the S&P 500 and S&P 100 (OEX) index.

Option premiums.

This indicator represents a four-week moving average of the total put premium divided by the total call premium for equities and indexes as reported by the Options Clearing Corporation (OCC).

Large block statistics.

Technical analysts watch large block statistics of 50,000 shares or more as reported in Barron’s every week. A 10-day moving average of the ratio of upticks to downticks is used. When the ratio is rising, institutions are accumulating, which is considered positive. When the ratio is falling, institutions are liquidating, and that is considered negative.