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Strategies & Market Trends : Ask Vendit Off-Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (4828)	2/10/2005 5:37:05 PM
From: Walkingshadow	Respond to of 8752

Well.... that's not entirely true. I think sentiment is only partly reflected in the chart. Sometimes, there is big mismatch between the chart/technicals and sentiment, and such situations can be very helpful (sort of like bearish or bullish divergence between price movement and technical indicators). When I can, I like to consider sentiment as reflected in a number of indicators, e.g. the put/call ratios, etc. I think there are several possible ways to examine stocks, and each of them gives somewhat independent information: fundamental, technical, chart, volume patterns, market internals, and sentiment. Sentiment can be very useful in anticipating pivot points when sentiment runs to extremes. This is something like using Bollinger band width.... BBs width tend to wax and wane with pretty fair regularity, but when the get excessively wide or excessively contracted (compared to the average range), then that can be a powerful predictor. But what you will find is that sentiment can run to extremes despite no abnormality at all in BB width---that is, they are not highly correlated. Particularly important is interpreting sentiment within the context of the particular stock/index historical trends, and also within the context of the general market sentiment indicators. Basically, when things get out of whack with one another, that's the time to pay closer and closer attention. The crowd is often correct in the middle of trends, but most often completely wrong at the reversal points. The bigger the crowd, the more extreme the sentiment, the greater the probability that the crowd is wrong and the market will show them so. This also helps interpretation of charts/technicals, since such things can allow you to place a higher degree of confidence in what the charts/technicals are saying. This is what we have now with QQQQ----most of the various ways of looking at the index are consistent with the interpretation we have developed, but they are looking at the situation from different perspectives. So, they bolster the interpretation. These things are not completely independent, but I consider sentiment relatively independent. Just another dimension to overall analysis. I tend to rely heavily on charts/TA, but I don't ignore anything if I think it can provide useful insight. Even rumors have value sometimes.... whisper numbers, for example. If you are interested in sentiment, I think Bernie Schaeffer's work and his website are first-rate. T