Charts of the International Securities Exchange (ISE) Sentiment Index plotted versus the Dow Jones Industrial Average (DJIA chart), S&P500 (chart) and NASDAQ composite index (COMPQ chart) are key sentiment indicators for stock market technical analysis. Contrarian theory states the time to buy is when fear and pessimism is at a maximum since this usually occurs near market bottoms.
According to the ISE web site (http://www.ise.com/):
The ISE Sentiment Index is a unique put/call value that only uses opening long customer transactions to calculate bullish/bearish market direction. Opening long transactions are thought to best represent market sentiment because investors often buy call and put options to express their actual market view of a particular stock. Market maker and firm trades, which are excluded, are not considered representative of true market sentiment due to their specialized nature. As such, the ISEE calculation method allows for a more accurate measure of true investor sentiment than traditional put/call ratios.
For a current reading on what the ISE sentiment index charts and many other sentiment indicators mean, subscribe to Kirk Lindstrom's Investment Newsletter.
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