Trader’s Narrative

Investor’s Intelligence (II) is one of the oldest measures of market sentiment we have. It has been continuously calculated each week since its founding in 1963. Right now it is overseen by Michael Burke of Chartcraft. Every week he decides if each of the more than 100 market newsletters included in the II is bullish, bearish or neutral. These results are released usually over the weekend.

It is important to note several key characteristics of this particular sentiment measure. For one, it is not a measure of individual investors or those who are actually comitting money to trades or investments. Rather, it measures the advice that newsletters are giving their clients. And as you would expect, newsletters have a naturally bullish tendency since they are trying to sell themselves.

As well, for the II ‘neutral’ means that the newsletter is bullish longer term but is expecting a short term correction. The determination of whether a newsletter is classified as bullish, bearish or neutral can be confusing sometimes. Michael Burke has mentioned that he looks at what the tone and general market commentary of the newsletters, not just their specific recommendations.

Over its long history, II has captured the majority of key market turning points. Even so, II is best used for intermediate to long term market timing. Checking in every single week is not really necessary (although for market junkies it is par for the course). Like most sentiment metrics, II is better at finding bottoms than market tops. The tops that it has flagged have usually been quite early.

Some common ways of looking at the II data is to isolate the bullish and bearish data and graph them together. Another method is to calculate a bullish ratio by dividing the bullish numbers by the sum of the bulls and bears (ignoring neutral readings).

In case you’re wondering, right now Investor’s Intelligence is 38.7% bullish and 34.4% bearish. The bull ratio is 53% signalling oversold. Although this is a sign of nervousness from newsletters, in late 2002, this ratio reached an even more extreme 40%.