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Sentiment towards a number of key global indices is changing fast as the situation in Ukraine appears to be going from bad to worse. Now is a great time to check out how traders feel about the major European and USA indices 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.
GER40 – Bulls Crush
According to the ActivTrader Market Sentiment tool traders remain irrationally bullish towards the GER40, due to this week’s major technical breakdown, which saw the index move to a multi-year low.
The ActivTrader Market Sentiment tool shows that 70 percent of traders are expecting more losses in the GER40. This large positive sentiment bias is increasing since last week and could be hinting that more pain for bulls is coming.
I would suggest that until the Ukraine situation is resolved then the GER40 is a sell, especially while under the 15,000 level.
Euro50 – Wrong Sided
The ActivTrader market sentiment tool shows that 68 percent of traders are bullish towards the EuroStoxx50, following its recent extremely bearish technical breakdown under the 4,000-support level.
Traders are still expecting more upside in the EuroStoxx50, despite its continuing to make new lower lows, and the worsening situation in Ukraine, which is threatening to turn into a major war.
In order for the bulls to be right, or irrational bulls, we really need to see a major change in the border situation, and Russia backing down, or else I see more pain ahead for the EuroStoxx 50 index.
UsaInd – Major Skew
Market sentiment towards the Dow Jones Industrial Average remains extremely positive, which is very surprisingly given that a number of huge technical levels have been broken over the Ukraine news.
The ActivTrader market sentiment tool showing that some 88 percent of traders currently bullish towards the DJIA which again is very surprising given that the situation is Ukraine is causing havoc in financial markets.
I think that the current sentiment reading is giving out a major bearish signal, as there is significant scope for further downside if this remains the case.
