Bull/Bear Ratio: Overview and Examples of Market Sentiment

What Is Bull/Bear Ratio?

he bull/bear ratio (sometimes known as the bull-bear spread) is a market-sentiment indicator published weekly by the financial data provider Investors Intelligence, which uses information polled directly from market professionals. Information is taken from investment advisors who work directly with the general investing public to help them with financial planning and investment portfolios.

Understanding Bull/Bear Ratio

Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It is the feeling or tone of a market, or the crowd psychology, as revealed through the activity and price movement of the securities traded in that market. In broad terms, rising prices indicate bullish market sentiment, while falling prices indicate bearish market sentiment.

The bull/bear index reflects the aggregate sentiments of financial advisors and planners who deal daily with the market. It reflects how well-informed professionals feel about the stock market and how they likely advise their clients to invest based on those feelings.

Investors Intelligence publishes a weekly poll of investment advisors as to whether they are bullish, bearish, or neutral on the stock market. The bull/bear Ratio is the relationship between those advisors that are bullish to those that are bearish.

A reading above "1.0" indicates that more advisors are bullish about the market; where bullish refers to investor sentiment that believes the that stock market will soon go up. A reading below "1.0" means a larger proportion of advisors are bearish and think the market will pull back in the near future.

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Extreme reading on either the bullish or bearish sides can be used as contrarian signals. Historically, these extremes, readings above 60% or below 40%, have coincided with market tops or bottoms.

Using Bull/Bear Ratio

In order to form the bull/bear ratio, investment advisors are polled weekly by Investors Intelligence. Investors Intelligence is a service that publishes daily market indicators and other things people can use to day trade. The bull/bear ratio is a long-standing indicator that shows shifting sentiments of market professionals such as financial advisors.

A financial advisor's sentiment is going to affect the way they communicate with their clients and may even switch the way they advise their clients to invest, affecting the movement of the market. As the bull/bear ratio rises and falls, it indicates the portion of the investment community that is bullish (or expecting the market to go up), versus the portion that is bearish (or expecting the market to fall).