The Tomanyian Bullish Meter

[Tomanyiron]

To reiterate the idea behind the Bullish Meter, it’s to measure extremeness. On the list of 10 timeless rules for investors, number 1 is “Markets Return to the Mean Over Time”. Whether they face extreme optimism or pessimism, markets eventually revert to saner, long-term valuation levels. So at extreme levels a resistance start to hinder further gains. However, no one knows what that exact level will be each time, maybe a ball park number. And # 2, there is always those outside forces that fight the “Return to the Mean”.
I will add a little more to my idea of the Bullish Meter tomorrow.

[Tomanyiron]

The Bullish Meter Idea Part 2: Even when you get to high bullishness readings, it simply means that prices are very strong. And that strength often attracts more herd buying, followed by even higher prices.
Now you must figure out when the trend will reverse. You start looking at sell setup indicators, momentum (speed of price) slowing down. And then herd panic indicators, a sudden dip in money flow, (negative volume). And that is the case now.

[Tomanyiron]

So now we are in the oversold area, what’s next? All we know for sure is it’s a reversal of the current trend. But, I think it will at least keep descending until it reaches the 50-Day moving average. Small caps are about 1% above the 50-day now. 1-The 50-day (already rounding) can start down, making more losses. 2-And as we stayed overbought a while, oversold can last a while also.
And if the numbers go negative, the meter will switch to a “Bearishness Meter”.

[Tomanyiron]

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[Mad Maxx]

Trying to catch up and do some back-reading, but was wondering your thoughts on what the "sweet spot" is to consider buy/sell/hold using the bullish meter as one (of a few) indicators? Thanks for all the charts you provide! It certainly gives me food for thought before allowing any emotions take over.

[Tomanyiron]

Trying to catch up and do some back-reading, but was wondering your thoughts on what the "sweet spot" is to consider buy/sell/hold using the bullish meter as one (of a few) indicators? Thanks for all the charts you provide! It certainly gives me food for thought before allowing any emotions take over.

I have looked back and see above 80 as overbought, but not a sign to sell yet.
I also see under 30 as oversold, but also could stay that way a while.

No backtesting ever done, but I would say this:

Buy- When BM goes under 30, then back above that line.
Sell- When BM goes above the 80 line, then under.
Stipulations:
A After the BM went below 80, but turns back up and gets above 80 again, buy back in.
B After BM moved above 30, but turns back and dips under the 30 line, then Sell (As it just did).

Edit: There will be times when you use up all your IFTs, and can't buy back in. But that does not happen often, as I have seen.

[Tomanyiron]