Sentiment towards European is extremely important this week as Russia and Ukraine intensify and the UK economy looks to be spluttering. Now is a great time to check out how traders feel about some of the major three metals, 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.
According to the ActivTrader Market Sentiment tool the majority of traders are still quite bullish towards the price of UK, which comes as a surprise considering the recent problems with the UK economy.
The ActivTrader Market Sentiment tool shows that 66 percent of traders are expecting more upside in the FTSE100. Given that the bullish bias is not too extreme it is not impossible for gold prices to head higher.
It should be noted that sentiment is very important for stock traders. If and when sentiment turned negative it could seriously accelerate the upside in stocks.
EURO50 – To Bullish
The ActivTrader market sentiment tool shows that 74 percent of traders are bullish towards the Euro50 despite the Ukraine and energy crisis across Europe. Strange that traders have turned very bullish.
The recent bearish developments in Russia and high inflation numbers in Germany certainly give rise to the prospect that more losses are likely to be seen across European stocks..
I think we are not yet at the end of the down move in medium-term horizon given the state of the global economy. With this is mind we should probably expect more losses in the Euro50 index.
GER40 – Evenly balanced
Market sentiment towards the German DAX is currently neutral. This is another surprise as I would have expected that traders would be much more bearish towards German stocks this week.
The ActivTrader market sentiment tool showing that some 50 percent of traders currently bullish towards the Ger40 and that 50 percent are also bearish. This suggests range trading ahead.
I think it is worth noting that the sentiment bias flipped recently from bullish to neutral. This could suggest an end to the downtrend in the Ger40.