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Strategies & Market Trends : Investor sentiment surveys - a technical indicator
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To: p. webster who wrote (18)4/4/1997 1:39:00 PM
From: Q.   of 167
 
P. Webster, the correlation between the S&P 500 and the sentiment is for the most part *not* all that high. If you make a scatter plot of the sentiment and the change in the S&P 500 some number of weeks later, it will look like a shotgun blast. The blast is a little skewed so that if the sentiment gets to extreme levels (>55% or < 25%), then there is a very predictive capability of the movement of the S&P 500, but 99% of the time the sentiment isn't that extreme and the correlation isn't strong enough to be useful.

Sorry that I didn't write down the numbers for correlation coefficients for bullish % vs. bearish % copmared to changes in S&P, so I can't tell you what they were. When I did it, I was just looking to see which one showed more correlation so that I could pursue that one in my backtesting. I wasn't interested in the correlation coefficients for their own sake.
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