Market sentiment index


Economists often see the stages of economic cycles, the so-called growth cycles, which are large scale fluctuations in the economic indicators in the growth stage. Growth cycles do not occur in each period of the economic cycle, but are a very common occurrence. The amplitude of the fluctuations of macroeconomic indicators can they have a value comparable to the amplitude of the basic economic cycle. Nevertheless, the economy, showing such growth cycles is clear and indisputable rise. Although, as mentioned in the books on economic statistics, to distinguish the early stages of the growth cycle from the beginning of a new period of the basic economic cycle is not possible.

In economic statistics invented many indicators that have the main task is to monitor and prediction of the dynamics of business cycles. One of the most common types of these indicators are the business optimism index (business), which do not measure the volume of production, prices, etc., and are based on opinion polls business participants who express their estimates - better business conditions or become worse. It turns out that the indexes are very highly correlated with GDP growth, industrial production, etc. (Read about the structure and methods of measuring the economic cycles can be in books on fundamental analysis mentioned in the bibliography). If we compare the graphs of such cyclic indicators and proposed in this paper examples of market sentiment index, then they can find a lot in common.

The expected properties of the Index

After a series of research I managed to find an indicator that in its behavior can provide an index of sentiment. He often shows his "growth cycles": moving out of the area in the oversold overbought, it may take a few ups and downs. But, as long as the market remains upward trend, the ups and downs occur when the index value in a bounded domain. When the market is prepared to fracture trend index is at the top of the range. The movements down, which makes a market in the index at the top region, are likely to experience the beginnings of bearish market.

It is clear that not every roll down, beginning with a high index value becomes a real turn. A high index value means that the market is going up, as long as the course goes up, the index remains at high values. But they fell back down, starting with the Index, located in the high range of the turn into the trend fractures are much more likely than all other setbacks that occur at intermediate values of the Index. Clearly, the greater demand from any reasonable indicator and can not.

Specific points to make a transaction index can not show, more precisely speaking, he promptly gives signals of a possible reversal of the market, but then, having taken a certain direction (bullish or bearish), it ignores a very long time, many opposing traffic. Therefore, these movements, in terms of the Index is to roll back the market, and they should be used for open positions in the direction indicated by the Index. But the criteria for opening such a position may not be associated with this index, and even better if they are based on other technical signals.