Sentiment towards a number of European indices is critical as EU stocks attempt to hold onto recent gains. Now is a great time to check out some of the most extreme sentiment traders look for contrarian trading signals via sentiment readings.
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 of 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 – Still high
According to the ActivTrader Market Sentiment tool a large majority of traders are still bearish towards the GER40 continues to move towards the 14,500 level.
The ActivTrader Market Sentiment tool shows that only 37 percent of traders are expecting more upside in the leading German Index. This is a 4 percent increase since the previous trading week.
It should be noted that sentiment is very crucial for the German DAX as we typically look to fade extreme sentiment biases in the stock trading industry.
UK100 – Declining bias
The ActivTrader market sentiment tool shows that only 27 percent of traders are bullish towards the FTSE100 as it continues to race higher as UK stocks rally.
The sentiment bias certainly alludes to more upside trading, however, it is important to state that bearish sentiment has dropped by around 9 percent since last week.
I think we are about to see more gains in the UK100 as traders are caught being extremely short and extremely bearish.
CAC40 – Dropping Slightly
Market sentiment towards the CAC40 is getting less bearish, which is a bad sign for bulls as one-sided sentiment skews tends to mean the opposite in terms of what traders are expecting.
The ActivTrader market sentiment tool showing that only 42 percent of traders currently bullish towards the leading French index. An increase of 4 percent since last week.
I think it is worth noting that the more traders turn bullish then the downside should start to pick-up.