Lowrisk.com Sentiment Survey

Click here for chart of Bull Ratio  Bull Ratio 4-wk Average

APPLICABLE TIME FRAME(S):  

INTERMEDIATE

UPDATE SCHEDULE:

Each Saturday morning by 11:00 AM EST, though sometimes the data will be updated by Wednesday if lowrisk.com sends their information out in a prompt manner.

REPORTING DELAYS:

One week, so the most recent update will be at least one week old.  Sometimes, however, the data will be updated within three days of the close of the polls.

EXPLANATION:

The folks at www.lowrisk.com have been kind enough to grant us permission to use their data for our perusal.  This web site has been offering a weekly survey on their site since 1997 which asks participants whether they think the Dow Jones Industrial Average will be up 2%, down 2% or flat over the next 30 days.  They also ask for an estimate of where participants think the Dow will close a week hence. 

This has been an historically bearish crowd, with 58% of the responses being net bearish over the past five years.  Interestingly, over the past two years (bear market), the average bullish ratio (bulls / (bulls + bears)) has been under 50% a whopping 78% of the time.  So, you might think we could use this in a non-contrarian way (i.e. when the survey is bullish, we should be bullish). 

Alas, like most other mass investor surveys, this crowd is usually wrong at the extremes.  We should view this survey in a contrarian light, like the others above, once it reaches an extreme. 

We follow the weekly bull ratio of this survey, which is calculated as follows:

LOWRISK BULL RATIO = % BULLS / (% BULLS + % BEARS)

So, for example, if one week we have 35% bulls and 45% bears, the bull ratio would be 44%:

LOWRISK BULL RATIO = 35% / (35% + 45%) = 35% / 80% = 44%

GUIDELINES:

We consider this data to be generally bullish for the market when the bull ratio drops to 29% and below.  We consider it bearish for the market beginning with bull ratio readings of 53% and above.

STATS:

*Standard Deviation.  See below for a description of standard deviation for the bull ratio:

68% of readings (1 standard deviation) should be between 32% and 60%

95% of readings (2 standard deviations) should be between 17% and 74%

99% of readings (3 standard deviations) should be between 3% and 88%

In other words, we should expect a reading under 17% or over 65% approximately 3 times per year.  Since such a reading would be relatively unusual, it suggests that we may be seeing an unsustainable trend.  These figures assume a normal distribution curve.

ADDITIONAL RESOURCES:

Lowrisk.com (www.lowrisk.com)

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