Final answer:
A high put/call ratio is considered a bullish signal by contrarian investors, who see it as an indicator of overly pessimistic sentiment that may precede a market turnaround.
Step-by-step explanation:
Contrarian investors interpret a high put/call ratio as a bullish signal. This ratio serves as a sentiment indicator that reflects the amount of trading volume in put options versus call options. A high ratio suggests that there is a greater volume of puts, indicating that investors are possibly hedging or speculating on a market decline. However, contrarian investors often read this as an overly pessimistic sentiment and anticipate a potential market turnaround or rally, hence deeming it a bullish signal.
Looking at historic market trends, bull markets are characterized by rising markets such as the examples from 1995 and 2000 when the Dow Jones Industrial Average (DJIA) saw significant gains. Bear markets, on the other hand, like those that occurred in 1998 and in five subsequent instances in the U.S., showcase a decline in market values over an extended period. While the put/call ratio is an independent indicator, understanding market behavior can help investors interpret and utilize this ratio more effectively.