Sentiment towards a number of European indices is changing as stocks start to break sharply higher. Now is a great time to check out some of the most extreme sentiment traders who look for contrarian trading signals via sentiment readings.
The 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 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 points and big moves may be nearing.
Ger40 – Breaking Out
According to the ActivTrader Market Sentiment tool, a large majority of traders are now bearish towards the GER40 as it starts to edge towards the 14,500 level.
The ActivTrader Market Sentiment tool shows that only 41 percent of traders are expecting more upside in the leading German Index. Given that bearish bias we usually see the market heading higher under these conditions.
It should be noted that sentiment is very crucial for the German DAX as we typically look to fade extreme sentiment bias in the stock trading industry.
UK100 – Huge bias
The ActivTrader market sentiment tool shows that only 18 percent of traders are bullish towards the FTSE100 as it continues to race higher as UK stocks rally.
The sentiment bias certainly alludes to more upside trading, however there is now huge one-sided sentiment so more than anything an explosion higher is likely.
I think we are about to see more gains in the UK100 as traders are caught being extremely short and extremely bearish.
CAC40 – Gains likely
Market sentiment towards the CAC40 is getting more bearish, which is a bad sign for bears as one-sided sentiment skews tends to mean the opposite in terms of what traders are expecting.
The ActivTrader market sentiment tool showing that only 38 percent of traders currently bullish towards the leading French index.
I think it is worth noting that the more traders turn bearish then the upside should only accelerate onwards.
