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Sentiment towards a number of major indices is changing quickly after Ukraine negotiations made a key breakthrough. A solid recovery is well underway in European indices, with some indices already above their 200-day moving averages. Now is a great time to check out how traders feel about the key European indices.
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.
UK100 – Very bullish
According to the ActivTrader Market Sentiment tool traders a large majority of traders are now bearish towards the UK100, despite the leading UK index showing no current signs of stopping right now.
The ActivTrader Market Sentiment tool shows that 61 percent of traders are expecting more losses in the leading UK index. This bearish one-way positive sentiment reading has remained consistent during the recent price rise and is strongly warning that more upside is coming.
I think the technicals are also bullish after the UK100 after the index easily moved back above the 7,500 level. Couple this with the bearish sentiment bias, I think more upside is likely.
Euro50 – 4,000 calling
The ActivTrader market sentiment tool shows that 54 percent of traders are bullish towards the sterling, following its recent price recovery in the Euro Stoxx 50, which looks to be targeting the 4,000 level.
Traders are still not expecting more gains, with 46 percent bearish, given that retail traders are usually on the wrong side of the trade, this is very difficult to read.
In order for the bulls to be right, we really need to see some more positive news coming from the Ukraine as this is a difficult time to be long risk-on asset classes.
GER40 – 15,000 up next
Market sentiment towards the GER40 is becoming more bullish, which is not very surprisingly given that the leading German index is already moving back towards the technically important 15,000 resistance level..
The ActivTrader market sentiment tool showing that some 43 percent of traders currently bearish towards the Ger40, meaning that retail is on the whole, still bullish.
I think that the current sentiment has all the hallmarks of more temporary upside, with the current bullish market, I still think we could see the GER40 above the 15,000 level soon.
