When fear is here, is the bottom of the market near? According to Stephen Whiteside, CEO of the stock trend analysis site www.TheUpTrend.com, when investors get too greedy, markets usually fall. When investors are overcome with fear and anxiety, markets usually rise.

Financial behaviour patterns are closely tracked, and have become a trend-setting business. In spite of the Nobel Prize-winning research of Daniel Kahneman and others, it remains an inexact science. The challenge for market analysts is to build a model that has the consistent ability to not only predict, but monitor investor emotions.

How can such knowledge be leveraged for profit since it appears to be rather illogical reasoning?

Simple. A shrewd investor, by having the courage of conviction, in adopting a contrarian view of investment timing, has the potential to become hugely successful. This type of investor is buying when others, succumbing to depression, anxiety, and legitimate concern, will reallocate their portfolios to more conservative positions, or completely sell out.

It is worth while mentioning here that institutional investors, in some recent statistics, have been found to be far worse in following the herd, and selling on market distress than small investors. Wouldn't you think that it was just the reverse?

The small investor, of course, is less able to take advantage of analysing financial behaviour patterns, any more than we can easily slough off the cause of or the residual effect of the toxic waste mess now enveloping us. The market does not discriminate.

Disgusted individual investors should not have to feel market punishment perpetrated by the financial arrogance of those who knew far, far better.

There are a number of patterns that are used to track changes in investor psychology that can indicate opportunities to buy or sell.

Sentiment surveys: These opinions are culled from members on a site-voting platform at the American Association of Individual Investors website. As of February 13, 2008, 33 percent are bullish, 25 percent neutral, and 42 percent are feeling the icy winter breath of the Artic Bear. Sentiment surveys are closely watched by market economists and are considered leading indicators.

The magazine cover indicator is another contrarian indicator. According to the Big Picture, the covers of national news magazines and business publications show what is making news today. The markets, on the other hand, are a future discounting mechanism. They anticipate future events, and reflect them in price and trend.

You can bet that magazine covers sell magazines and these stories are featured because they are resonating with the public at that moment. When an editorial committee decides something is worthy of their publication's highest profile, it usually means that trend has already reached its climax and it is time to move on.

At that point, everyone, including the dogs in a household (who are probably chewing the magazine to pulp) already know all about whatever crisis event being reported. It is old news! Media talking heads. This is my favourite and I am probably the only one that tracks this group on an informal basis. The more they look worried and talk about fear in the markets, the more it appears that the market has moved on, looking for the next high.

When measures of US consumer confidence reach multi-year lows, contrarians are already shopping for bargains. www.BigTrends.com has an interesting chart and article of the documented opportunities presented in the past during large drops in consumer confidence.

Within the industry itself, another contrarian sentiment, the CBOE Put/Call volume ratio is used for forecasting market directions. Investors purchase put options that give them the right to sell a security at a given price while purchasers of call options receive the right to buy a security at a given price. When the volume of put ratios far exceeds the call ratios, this is a signal that the market is close to a bottom. Contrarians will start buying beaten down investments.

Conversely, when the call ratios volume is accelerating, this is a sell signal for contrarians. The Chicago Board Options Exchange tracks this closely watched option activity on a weekly basis. You can view it on their website.

It is probably true that not even the most astute investor known to man can accurately predict market directions. Money managers, economists and institutional investors use many more indicators than those listed, but in the end, intuition, subjective judgment, quantitative analysis, ethics and experience, along with appropriate hedging of risks undertaken, are the hallmarks of successful finance.

Martha Harris Myron CPA -NH1929, CFP® -67184 (US licenses) is a dual citizen (US and Bermuda). She is a Senior Wealth Manager at Argus Financial Limited, specializing in comprehensive financial solutions and investment advisory services for individual private clients and their families, business owners, endowments and trusts. DirectLine: 294 5709 Confidential email can be directed to mmyron@argusfinancial.bm The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.