By:  George Angell

The following is an excerpt from George Angell's Small Stocks, Big Profits 

For almost 40 years now, seal firms have attempted to measure the relative bullishness of the stock market by publishing weekly bullish consensus numbers.  A company known as "Market Vane," based in Pasadena, California, pioneered the idea of taking a weekly survey of select market participants and trying to come up with a single percentage that reflected their thinking.  In general, a high number (above 70 percent) suggested bullishness; a low number (under 30 percent) suggested bearishness.  The idea, however, was to use the numbers as a so-called "contrary" indicator - that is, high bullishness often signaled the market was overbought and high bearishness signaled the reverse, an oversold market.  The reasoning was that if so many participants were bullish, the market had nowhere to go except down.  Likewise, with the predominate crowd of investors bearish, the market, went the thinking, was ripe for a sharp middle, however, the readings were decidedly mixed.  To use contrary indicators you clearly wanted an overwhelming majority on one side or another.