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Sentiment towards a number of indices is critical as stocks attempt to hold onto recent gains. Now is a great time to check out the most extreme sentiment traders 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 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 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.
NASDAQ – High reading
According to the ActivTrader Market Sentiment tool a large majority of traders are still bearish towards the Nasdaq as continues to trade above the 14,500-resistance level.
The ActivTrader Market Sentiment tool shows that only 63 percent of traders are expecting more downside in the leading United States tech Index. This is a large increase since the previous trading week.
It should be noted that sentiment is very crucial for the Nasdaq as we typically look to fade extreme sentiment biases in the stock trading industry.
UK100 – Rising sentiment
The ActivTrader market sentiment tool shows that only 19 percent of traders are bearish towards the FTSE100 as it continues to move lower as UK stocks undergo a correction.
The sentiment bias certainly alludes to more downside trading, however, it is important to state that bearish sentiment has increased by around 10 percent since last week.
I think we are about to see more losses in the UK100 as traders are caught being extremely long and extremely bullish into the correction.
USA500 – Looking Good
Market sentiment towards the USA500 is bearish right now, which is a good sign for bulls and bears sentiment skews tends to mean more upside breakouts to come.
The ActivTrader market sentiment tool showing that only 36 percent of traders currently bullish towards the widely trading index and 64 percent bearish.
I think it is worth noting that the more traders turn bullish or bearish then we should expect the opposite price effect to happen.
