What is a key indication to look for when using the Sibbett's Demand Index?

The Sibbett's Demand Index is used primarily to assess market strength in terms of supply and demand dynamics. A crucial aspect to focus on while using this index is the identification of divergences from previous trends. When the index shows divergences, such as when prices are moving in one direction while the Demand Index is moving in the opposite direction, it indicates a potential weakness or strength in the prevailing trend. This can signal impending reversals or continuations in the market that traders can act upon.

Other choices may also seem relevant, but they do not address the core utility of the Demand Index in the way that identifying divergences does. While consistently high buy signals might suggest strong demand, they don't provide the nuanced view needed for trend analysis. Overall market volatility is useful in different contexts but does not specifically pertain to the Demand Index's function. Changes in investor sentiment can influence market movements, yet the demand index focuses on the relationship between price changes and the volume of buying and selling rather than sentiment alone. Therefore, recognizing divergences is essential for effective trading strategies using Sibbett's Demand Index.