The Five Best Performing Stock Market Indicators

Sentiment index. The number of bearish investment services as monitored by Investors Intelligence, a stock-market advisory. Bullish sign: Almost 50% of the investment advisers are bullish. Fewer than 17.8% of the advisers are bearish. (The advisory consensus is usually wrong at significant turns in the market.)

Member trading. Bullish when members of the New York Stock Exchange (NYSE) swing from the sell to the buy side. Bearish when they swing to the sell side. This indicator has a bias toward the sell side as a general rule, so deviations are what are significant.

Funds' cash. Bullish when funds have more than 9.4 % in cash. Bearish when cash is below 6.2%.

Swing direction. Swings of more than 5% on the Dow. Bullish when up. Bearish when down.

Advance-decline figures. Two week daily average of advances minus declines on the NYSE as a percentage of total issues traded. Bullish when over + 13.8%. Bearish when below- 18.2%.

Investment strategy: The study that analyzed these indicators suggests that long positions in the stock market are justified when at least four out of five of the above indicators are in a bullish mode. Hold positions until the majority of indicators turn bearish. Sell short only when four out of five are in a bearish mode.

Source: Merrill Analysis, Inc.