The phrase
"contrary indicator" means something that goes against the usual pattern or expectation. It refers to a signal or piece of information that suggests the opposite of what most people believe or anticipate.
Full definition
Extreme negativity of investors has generally been a useful
contrary indicator of stock market prospects.
However, the results of both surveys should be
contrary indicators because in both cases the surveyed population comes under the broad category affectionately known as «dumb money».
In the stock market, we have extreme overvaluation, unfavorable trend uniformity, hostile yield trends, unusually extreme bullishness (
a contrary indicator), and a negative reversal in breadth momentum off of an overbought peak.
Yesterday, the Federal Reserve's statement added
another contrary indicator suggesting the end of the expansionary cycle; their avoidance of economic weakness.
And, because mutual fund inflows have historically been
a contrary indicator, this trend might worry investors.
Again, the effectiveness of the «magazine cover» as
a contrary indicator is at extremes, when an event has so clearly run its course in reality and market prices that it is taken as common knowledge.
Since the public is invariably wrong at price extremes, it certainly can be helpful to track the public's sentiment and use it as
a contrary indicator.
It doesn't help to argue that consumer confidence is still high, because consumer confidence is actually
a contrary indicator, as are capacity utilization, the ISM figures, and other factors being used for bullish fodder.
However, it is such a widely watched event that it might work as
a contrary indicator.
In the recent Dobbie and Fryer evaluation of the Harlem Promise Academy, it actually appears that the Duckworth scale was
a contrary indicator of later life success.
Since the public is invariably wrong at price extremes, it certainly can be helpful to track the public's sentiment and use it as
a contrary indicator.
Still, the Big Money Poll is most useful as
a contrary indicator.