Sentiment towards precious metals is starting to fall after reaching extreme levels this month as the US dollar index starts to correct lower after its recent massive breakout. Now is a great time to check out how traders feel about some of the major indices, as they 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 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.
GOLD – Trend Follower
According to the ActivTrader Market Sentiment tool the majority of traders are still bullish towards the price of gold, which comes as a surprise considering the recent bounce back from critical support.
The ActivTrader Market Sentiment tool shows that 62 percent of traders are expecting more upside in the yellow metal. It should be noted that sentiment has fallen by 3 percent since last week.
It should be noted that sentiment is very accurate when it starts to reach extreme levels, and this reduced sentiment bias could mean that the pace of losses is going to slow, but the price will continue lower.
Copper – Sentiment Down
The ActivTrader market sentiment tool shows that 53 percent of traders are bearish towards the price of copper. This constant one theme over recent months is now starting to come to an end. This is a bullish sign for copper.
The ActivTrader market sentiment tool showing that some 53 percent of traders currently bullish towards the copper, which is probably meaning that retail is about to experience less pain.
Copper sentiment was recently over 80 percent, so the massive drop in the bullish bias really hints that a meaningful price floor could be in, and copper prices can rebound.
Silver – Still Extreme
Market sentiment is bullish towards silver, which is very worrying if we consider that the price of silver has recently fallen under $18.00, and retail have not been totally wiped out yet.
The ActivTrader market sentiment tool showing that some 93 percent of traders currently bullish towards the price of silver which is probably meaning that retail is about to experience more pain.
I think it is worth noting that the sentiment bias is more extreme than other metals. This could mean that the pace of recent losses in silver will not stop. This is a big concern.