Sentiment towards a number of metals is changing after the recent sell-off inspire from banking trouble in the United States and Europe. Now is a great time to check out some of the most extreme sentiment traders looking 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 are built it can be a powerful sign that the retail crowd is 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 biases 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 – Slightly bullish
According to the ActivTrader Market Sentiment tool we are starting to see sentiment turning slightly bullish towards the yellow metal after this week’s price dump, which alludes to more price losses in the short-term.
The ActivTrader Market Sentiment tool shows that only 46 percent of traders are expecting more upside in the yellow metal. This is a small bullish 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 – Unchanged sentiment
The ActivTrader market sentiment tool shows that 61 percent of traders are bullish towards the price of copper as it continues to be consolidated compared to other precious metals.
The bullish sentiment bias is bad for now, as it certainly alludes to more consolidation or downside trading, however, it is important to state that the red metal has also been effected by a falling in metals over recent days.
I think we are about to see more losses in the copper in the near-term, however, at some point when other metals head higher, so will copper.
SILVER – Still positive
Market sentiment towards the price of silver is rising slowly over the short-term, but good over the medium-term the shiny-metal has the potential to move substantially higher.
The ActivTrader market sentiment tool showing that 78 percent of traders currently bullish towards the widely traded metal. Sentiment was over 70 percent bullish at the start of the month.
I think it is worth noting that the more traders turn bullish or bearish then we should expect the opposite price effect to happen.