Above 1.0 are considered bearish because the falling stocks would then have higher average volume than the advancing stocks, indicating net selling pressure. For every buyer, there must be a seller of stock. Rising volume in a rising market should not necessarily indicate a larger imbalance of buyers versus sellers.
The confidence index is the ratio of the average yield on 10 top-rated corporate bonds divided by the average yield on 10 intermediate-grade corporate bonds. The ratio shall be less than a hundred percent and positively correlated with the confidence in the market by the participants as a group.
The ratio of outstanding put options to outstanding call options is called the put/call ratio. Typically, the put/call ratio hovers around 65%. Interestingly though, different people have rather different forms of interpretation with respect to the trend of this index.[Especially considering contrarian investors]
Because put options do well in falling markets while call options do well in rising markets, deviations of the ratio from historical norms are considered to be a signal of market sentiment and therefore predictive of market movements.
However, a change in the ratio can be given a bullish or a bearish inter-pretation. Many technicians see an increase in the ratio as bearish, as it indicates growing interest in put options as a hedge against market declines. Thus, a rising ratio is taken as a sign of broad investor pessimism and a coming market decline.
Contrarian investors, however, believe that a good time to buy is when the rest of the market is bearish because stock prices are then unduly depressed. Therefore, they would take an increase in the put/ call ratio as a signal of a buy opportunity.