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Sentiment towards a number of key trading instruments is seeing big changes after the recent release of the FOMC meeting minutes revealed a big change in expectation from the FED as the speed up the timeline for rate hikes. Now is a great time to check out how traders feel about the market from a sentiment perspective.
Trading sentiment is most effective when retail traders are running counter trend, meaning that they are heavily leaning against established market trends and in increasingly large numbers. Additionally, once big sentiment skews build it can be a powerful sign that the retail crowd are being too one-sided.
Typically, market sentiment readings for an instrument that has reached around 75 to 80 percent is considered to be at an extreme level, while market sentiment readings over 80 to 95 percent is often a strong indication that the trade could be topping or about to reverse at any time.
I will now look at some the strongest sentiment bias amongst the retail crowd right now. Some of the sentiment skews suggest that current price trends in FX, stocks, and precious metals are breaking point and big moves may be nearing.
NASDAQ – Worryingly Bullish
According to the ActivTrader Market Sentiment tool traders remain overly bullish towards the NASDAQ, as stocks start to look toppy after the recent FOMC minutes revealed that QE support may be about to be taken away.
The ActivTrader Market Sentiment tool shows that 76 percent of traders are expecting more gains in the NASDAQ. This large positive sentiment bias could be hinting that a big reversal is coming.
Traders that are long the NASDAQ could be in trouble if the market starts to correct lower due to fears that the FED is about to take away its monetary methadone from stocks, known as QE bond purchases.
USDJPY – Counter Trend
The ActivTrader market sentiment tool shows that traders are 89 percent of traders are bearish towards the USDJPY, even though the pair fails to decline amidst renewed demand for the greenback.
Traders are clearly betting that the USDJPY pair is overextended and are not worried that a multi-year range break has happened, and the central bank policy divergence between the Federal Reserve and the Bank of Japan.
In order for the bears to be right here, we probably need to see stocks dropping, but it must be stated that crowd sentiment is often wrong.
Gold – Too Bullish
Market sentiment towards gold is extremely bullish, despite the fact that the reduction of QE and coming rate hikes from the FED is likely to be heavily negative for the yellow metal this year.
The ActivTrader market sentiment tool showing that some 76 percent of traders currently bullish towards the gold, despite the recent and sharp corrective move to the downside from the $1,830 level.
Traders probably need to reconsider their bullish skew if we see weakness under the $1,730 level and a final break under the $1,680 level, which is likely to trigger massive technical selling.
