I think the difficulty is the timing. Some measures you might attempt to use are various investor sentiment indicators . Last I checked Barron's carried some "investor sentiment" indexes. It is commonly said that investor sentiment is at a minimum when the market turns around. Some people try to trade on this. Some people have written books on it. I read one in my early 20's. Unfortunately, my books are packed for my move right now so I don't have the title handy. The idea is that when investor sentiment is at its lowest you should be buying because everyone else is selling or out of the market.
The reason behind that though - not mentioned in the book - is that investor sentiment pretty much drops as a market drops and rises when it rises (the true picture is bumpier). Once the market rises and with the advantage of hindsight you'll find sentiment was near a low point somewhere near the actual low. Here's the problem. Just because you know that investor sentiment is at a low does not mean you know it is at its lowest. In a severe bear market you might keep finding investor sentiment at new lows and end up buying all the way down. Years ago, I bought a historical database of stock prices and tried all kinds of trading rules to try to generate automated programming rules. One of the things I found interesting was that there were some rules which won out the majority of times but you would have been killed trading strictly on it because there was that one really bad streak out there. This would be the thing to watch our for. Sentiment continually dropping during a long bear market.
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