Sentiment towards a number of key trading instruments is showing serious one-way skews as trends start to form in the stock, commodity, and foreign exchange market. Many trends in the market are counter-intuitive at the moment, meaning that some are running against the fundamentals, making it an even more important time to check out what retail traders are thinking.
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. This week many market trends have accelerated, as have sentiment skews, which continue to increase even as the trades head in the opposite direction.
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 peaking, and about to reverse at any time. With that said, I will now look at some the strongest sentiment trades amongst the retail crowd right now.
CRUDE OIL- Bearish Warning
According to the ActivTrader Market Sentiment tool some 82 percent of traders are currently bullish towards the further gains in Crude oil, despite the recent double-digit pullback, and fears over the new Delta variant causing yet more global lockdowns.
The widening sentiment skew suggests that further losses are possible. We should also consider that retail traders have bad market timing, so the expected reversal may not happen any time soon.
GER30 – Counter Trend
The ActivTrades market sentiment tool shows that traders are 69 percent bearish despite the German DAX trading to a new all-time high this week towards the 16,000 level, as European stock markets breakout.
GER30 bears have been crushed on every turn, so running counter trend against the German DAX is a risky proposition right now, meaning trying to short the leading German index is not yet advised.
If we combine the technical, the GER30 could be headed towards the 18,000 area, making it a very dangerous time to think about shorting. Overall, watch out for the upside in the index to accelerate above 16,000.
SILVER – Disbelief Phase
Market sentiment towards the silver is fascinating right now with the ActivTrader Market sentiment tool showing that some 91 percent of traders are bullish towards further gains in the price of silver.
A massive, long squeeze appears to be ongoing, and I must confess that the fundamentals are very much on the side of bulls, which makes the ongoing squeeze so confusing for many traders.
Overall, I think that the price of silver will eventually rally towards the $37.00 level, however, we do need to consider that this is a long-term trade and sentiment probably needs to flip bearish before this happens.