For example, if you polled a room full of informed investors as to their opinion on the direction of the market, they might all feel that it would advance. But if the investors all knew that the others also thought it would advance, they might then reverse their stance based on contrary opinion. Because of the "double negative" potential of sentiment indicators, some feel they have lost much of their usefulness. Following are several of the more popular sentiment indicators in use today:

Advisors Sentiment Index Confidence Index Gross Trinity Index Insiders Buy / Sell Ratio Installment Debt Indicator Large Block Ratio Margin Debt Margin Requirements

Members Short Ratio Odd Lot Balance Index Odd Lot Short Ratio Public Short Ratio Put / Call Ratio Put / Call Open Interest Short Interest Ratio Specialist / Public Ratio

Monetary Indicators

Monetary, or flow-of-funds, indicators seek to measure the capacity of various market participants to buy or sell stocks. The greater the availability of capital to fuel a market advance, the more likely prices are to rise. On the other hand, the lower the amount of cash available (e.g., by institutional investors), the less likely stocks are to advance. In fact, since mutual fund managers may ultimately have to sell stocks in their portfolios to raise cash for redemptions, low cash reserves can actually represent potential for lower prices.

Like sentiment indicators, flow-of-funds indicators also suffer from a major disadvantage. Although they are effective in measuring the capacity of market participants, they fail to measure the intention of the participants to put those reserves to work. For example, if mutual fund cash levels are low, it may represent a potential negative for the market for the reason previously cited. However, it may also represent a potential positive for the market since a higher proportion of their reserves have been put to work buying stocks. Conversely, a high institutional cash position may be a positive since it represents a pool of liquidity to fuel a market advance, or it could mean that the managers are negative on the market overall, and are therefore selling stocks. In addition, the reporting of monetary data is usually somewhat delayed making it of little use in the timing of investment decisions. Both sentiment and monetary indicators can serve a useful purpose, though, both as a backdrop to the overall market psychology and as confirming indicators. Examples of monetary indicators include:

Fed-Discount Ratio Spread Index Money Supply (Ml, M2, M3) Mutual Fund Cash / Assets Ratio

Mutual Fund Net Purchases Index Net Free Reserves

Ninety-Day T-Bill versus Discount Rate

Fed-Prime Rate Spread Index Short Interest Ratio Yield Curve

Zweig Fed Indicator Three Steps and a Stumble Two Tumbles and a Jump

Market Structure

The most valuable technical indicators are those that deal with the actual structure or characteristics of the market itself. Whereas early technical indicators (such as chart pattern analysis and moving averages) dealt primarily with price action, modern market structure indicators can be divided into four major camps:

1. Price. The level of enthusiasm.

2. Time. The duration of the move.

3. Volume. The degree of interest or conviction.

4. Breadth. The extent of participation.

When used in combination, these indicators represent the most powerful of all tools in the analysts arsenal. However, without a thorough understanding of their construction and application, these tools not only can prove meaningless, but also can be counterproductive. The balance of the chapter, therefore, will focus on the construction and application of several of the more popular of these indicators. Although the list is almost limitless, following are a few of the better known price, time, volume, and breadth indicators in use today:

Market Structure Indicators

Price, Volume, and Time Directional Movement

Accumulation/Distribution Index Accumulation Swing Index Average True Range Bollinger Bands Bollinger %B

Bolton-Tremblay Indicator Bull and Bear Power Chaiken Money Flow Chaiken Oscillator Commodity Channel Index Cumulative Volume Index Daily Volume Demand Index

Double Momentum Oscillator Dow Theory Ease of Movement Force Index Haurlan Index Herrick Payoff Index High Low Logic Index Intraday Intensity Index Linear Regression Analysis Linear Trend Indicator Mixed Momentum Index Money Flow Index Morris Volume RSI

Moving Averages

Moving Average Convergence-Divergence

Negative Volume Index

On-Balance Volume

Parabolic SAR

Percentage Bands

Positive Volume Index

Price Momentum

Price Phase Indicator

Price Volume Trend

Split Volume Moving Average

Standard Deviation

Stochastics (%K, %D)

Swing Index

Relative Strength Index

TRIX

Up / Down Volume Oscillator Ultimate Oscillator Volatility Index (Chaiken)

Volatility Index (Wilder) Volume Accumulation Percentage Volume Oscillator William %R Zig Zag

Breadth

Absolute Breadth Advance-Decline Line Advance Decline Oscillator Breadth Thrust Indicator High-Low Differential Market Facilitation Index McClellan Oscillator McClellan Summation Index Moving Balance Indicator Open TRIN ST1X

Traders Index (TRIN)

Other Indicators

Over the years, many other indicators have come along that have less to do wy:h sentiment, monetary policy or market structure, and more to do with cycles, fads, or chance. Some of them, such as the seasonal indicators, appear to be grounded in logic and can at least be tied somewhat to the economic and/or business cycle. Others seem to be purely fad and seem designed more to profit their promoter than the technicians who use them. Still, those who follow these indicators swear by them, and profess to profit by their signals. The bottom line, though, is that if you do not fully understand the indicator and can explain why it produces the results it does, better leave it alone. Tuition in the school of technical analysis can be expensive! Following are some of these indicators:

Days of the Month Presidential Election Cycle

Days of the Week Celestial/Astrological

First Five Days in January Super Bowl

January Barometer Womens Skirt Hems Pre-Holiday Periods