Over the past two columns, we’ve gone over the definition of CIs, how they work, and why. Now it’s your turn. Our third and final installment of "Fun with Contrary Indicators," will highlight the ideas which you, the readers, sent in.

Some were inspired, some quirky -- others totally over the top. But on the whole, these were so instructive -- and so much fun -- that they simply had to be shared:

The Peter Lynch Indicator
Jeff Bagley, a portfolio manager at McCabe Capital, notes a contrary indicator mutual fund legend Peter Lynch was fond of: When too many people want to talk with him about stocks, things are frothy.

"As a portfolio manager, I've lied about my profession numerous times over the past couple of years to avoid talking shop when on planes, getting a haircut, root canal, etc."

Has anyone been bothering Jeff to talk shop lately? "Don't worry too much about it any more," Jeff said.

The Wall Street TV Series Indicator
Mark Lehmann, head of U.S Equity Research at UBS Private Banking, had a favorite tell this year: "Not one, but two television shows about Wall Street. (The Street on ABC, and Bull on Fox). These both rolled out early in the year - just in time for the crash."

Lorin D. McCleary III got even more specific: "when a TV series has the title "Bull," you had better get to cash quicker than you can say "jack rabbit."

The "Eager/Fearful Bottom Calling" Indicator
Guy Ortmann, Research Coordinator at Prime Charter, likes to watch how eager the pundits are in racing out front to call a bottom. The quicker they are to make the call, the more suspect it is; They become increasinge bottom, you’re still in a Bullish mindset," Guy observes. "Market bottoms are made with high levels of fear, not optimism. "

Each time the Nasdaq would drop a few hundred points, it would attempt a partial rally back. That snapback made the talking heads eager to engage in another round of bottom calling.

Too eager, according to Guy: "Because the market had recovered part of a previous loss, pundits would declare ‘that we found a bottom.’ All the market had done was rally back to prior support – which had become a new area of resistance – it would test that resistance and fail."

Bob Chang astutely put it this way: "How many people called 4000, 3500, 3200, 3000, 2800, and 2500 as a place to buy stocks cheaply, only to watch the market plummet another 1000 points or so?"

Too many, indeed.

The "Dot Com SuperBowl" Indicator
A lot of you brought this one up: the huge number of "dot com" ads during the Super Bowl last year was a warning sign of a top which too few heeded. The consensus is that this years meager showing of dot com ads suggest a bottom is near – at least for the dot-coms.

This one certainly makes sense at the peak – when small, new companies have so much cash to throw around they don’t hesitate to drop huge dollars on an ad that runs once, that’s indicative of a frenzy in VC and IPO funding.

The reverse, however, may not be a great indicator: Small start ups not having cash for Superbowl ads may only suggests a return to normalcy -- not a sign of an extreme.

The "Bond Trader" Indicator
Tony Tang, a Muni bond trader, writes "Here is my favorite contrary indicator: Treasury bond traders buying high tech stocks." Bond traders are used to moving "millions of dollars of securities just to capture half a penny on par, and whose personal accounts are usually stuffed with muni bonds," says Tony. "In the frenziest months of last year, every one of them (me included) was either taking positions in the highest flying names or trading obscure tech stocks."

"Forget about the shoe-shine-guy's-stock-tip indicator" suggests Tony; "Try the bond trader's for a change."

Makes a lot of sense -- when guys who trade ultra conservative paper start speculating, that has to be a great tell. But until there’s a reliable (and public way) to track what bond traders are buying, it -- unfortunately -- remains a personal tell.

The "Jim Cramer" Indicator
Here’s a suggestion made by a few people (I was surprised by the number of people): "Of course, you forgot the best: When Cramer says "tech sucks," its time to buy!!! (that's a joke...maybe!)"

Quite a few of you said something to that effect. It’s a not a good indicator, and its worth while explaining why:

First, most of the indicators we’ve discussed are tracking the psychology of the general populace. While anyone one person can be right or wrong at a given time, it’s the behavior of crowds at their extremes that most interests us.

And second, the guy has made enough good calls over the years that its foolish to bet against him. No one’s perfect, but betting against a guy who has successfully traded the market for as long as he has is a low probability trade. A hedge fund with your name on the front door won’t stay in business for 15 years if you are "reliably wrong."

The "Dropping Coverage" Indicator
Vince Calicchia, an emerging growth company analyst at Arzei Capital, points out the following Dow Jones headline as his favorite contrary indicator:

"C.E. Unterberg To End E-Commerce Coverage Jan. 1, 2000"

"In yet another sign that the Internet bubble has burst," Dow Jones reported late last year, Wall Street brokerage firm "C.E. Unterberg Towbin Co. told employees this week that it plans to end analyst coverage of e commerce companies on Jan. 1 . . ."

When former supporters decide "not to even look at certain stocks anymore," it’s a sign the sector is bottoming, Vince writes.

Let me add the flip side to Vince’s point: when a slew of hot new sector funds all come rolling out at once (i.e., Biotech, Internet), it’s a strong sign we’re at the peak of that sector’s momentum. As these fuds crash and burn, it’s a sogn that selling pressure is abating – after the funds are liquidated, there’s that many less sellers.

The "Young Broker Sports Car" Indicator
Anthony Anzalone, an EVP at Josephthal Securities, started noticing a lot of the younger guys driving expensive news wheels. "When 21 year olds start dropping $1,000 a month to lease sports cars, brace yourself for the end."

That's a great tell -- ‘though not exactly a readily trackable one. Anthony adds: "I knew a young broker (from a different firm) who proudly dragged his co-workers out to Park Avenue to see his shiny new Lexus – weeks before the crash. A month later, he was out of the business."

The Ameritrade Index
Ebipere Clark and Mark P. Bower both pointed out the Ameritrade Buyer Percentage Index (Available at: http://www.ameritradeindex.com/amtd.html), which shows you the proportion of Ameritrade clients’ buying versus selling, as well as the stocks they are accumulating or distributing that day. I’ve only watched this index a few weeks – certainly not enough to draw any broad conclusions. It seems to be updated on a 24 hour delay, so it shows yesterday’s trading percentage which appears to parallel the up/down volume on the Nasdaq. The delay factor and the parallel to the Nazz up/down volume makes me wonder if this index is of any value.

Perhaps this bears further watching.

The "Contra-Contrary" Indicator My favorite head spinner is from a California reader:

"I agree with you on the signs of a market top . . ." wrote David Scarpa, "[but] I disagree that we're anywhere close to a bottom. Stocks don't sell at 80 or 100 times earnings at a bottom (let alone an entire index)."

David raises a valid fundamental valuation point, but then gets all Philip K. Dickian on me (author of Blade Runner : (Do Androids Dream of Electric Sheep?), Martian Time Slip and Ubik, for examples).

He continues: "Therefore, I would take your assertion that we're at a bottom to be just another contrarian indicator -- there's still a long way down."

Hmmm, an article about contrary indicators -- asserting this is a short term bottom -- as a contrary indicator itself. Once my head stops spinning, I'm going to have to give that some additional thought. David may very well be onto something . . .

If you would like a free subscription to my bi-weekly market comments, please send an email to email to Ritholtz@aol.com, including the word "SUBSCRIBE" in the subject matter line. Previous market comments are archived here.

---

Copyright © 2001 Barry L. Ritholtz, All Rights Reserved worldwide. May not be copied, stored or redistributed without prior, written permission. Home

---