Photo: Fist Of Legend via YouTube
Doug Kass pointed to it on his Real Money blog today.It’s Bob Farrell’s sentiment indicator.
Farrell, aka the dean of stock market research, was the legendary technician and top strategist at Merrill Lynch for 25 years.
He also created an elegant and reliable stock market indicator. Kass explains:
The Farrell sentiment study and market indicator takes the bullish percentage in the AAII survey and divides the figure by the bearish percentage plus half the neutrals. He then takes a 10-week moving average.
A bullish (and oversold) buy signal occurs when the 10-week average falls under 0.50 and rises from there. (There is often a two- to three-week lag before the market turns up.)
A bearish (and overbought) sell signal occurs when the 10-week average moves above 1.50 and then begins to fall. (Here, too, there is often a two- to three-week lag before the market turns down.)
Kass links to the data here.
“As you can see from the recent data, the Farrell sentiment indicator is close to (but not yet at) a buy signal,” wrote Kass.
The data is updated weekly, and Kass plans to keep everyone posted.
Farrell made our list of “The Best Advice From The World’s Greatest Investors.“