Sentiment towards a number of metals is changing ahead of Wednesday’s important Fed policy meeting. Now is a great time to check out some of the most extreme sentiment traders who 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 – Flat reading
According to the ActivTrader Market Sentiment tool we are starting to see sentiment neutralize towards the yellow metal ahead of the Fed, which alludes to price stabilization or losses in the short-term.
The ActivTrader Market Sentiment tool shows that only 52 percent of traders are expecting more downside in the yellow metal. This is a small increase since the previous trading week.
It should be noted that sentiment is very crucial for the price of gold as we typically look to fade extreme sentiment biases for precious metals.
COPPER – Sell sentiment
The ActivTrader market sentiment tool shows that only 39 percent of traders are bullish towards the price of copper as it continues to race higher as sentiment starts to improve towards China.
The bullish sentiment bias is up since last week slightly, but it certainly alludes to more upside trading, however, it is important to state that the red-metal has also been effected by a falling in China sentiment this week.
I think we are about to see more losses in the copper in the near-term, however, at some point a bigger upside price move will come.
SILVER – Still falling
Market sentiment towards the price of silver is dripping, which is a bad sign for bulls as one-sided sentiment skews tends to mean directional reversals or breakouts.
The ActivTrader market sentiment tool showing that 68 percent of traders currently bullish towards the widely traded metal. Sentiment was over 70 percent bullish last week.
I think it is worth noting that the more traders turn bullish or bearish then we should expect the opposite price effect to happen.