Turn off CNBC-Fox business-CNN-Bloomberg or whatever you may watch to get market information. Anybody who comes on, has an agenda. That agenda is to get you to buy what they already own or sell what they are already short. Which isn’t much these days.
Understanding the psychology of the stock market and how traders act, will put ahead of 98% of all other traders. Sentiment cycles will rarely be wrong for a long time, as Wall Street is a creature of habit. Traders become most bullish about the future near tops and most bearish near bottoms.
Legendary investor, Warren Buffett, said “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. Now as a trader or investor, you have to ask, are other fearful or greedy at this stage? I have yet to see anyone come on the airwaves and say bearish things about 2014, after a 30% rise in the SPX. So I would say, there is more greed than fear in this market.
Tracking sentiment will hands down give you an edge over other traders. But know that sentiment alone is not the trade set up. Watch for wave counts-technical divergences-the breadth of the market- and the duration of the long-intermediate and short term sentiment cycles.
The long and intermediate term sentiment cycles are at extremes and that should be taken seriously. We saw what happened with gold and it should not have come as a surprise. Everyone was pushing gold at the top and when gold topped at the sentiment cycle high, nobody thought anything about the drop.
Now you can’t find a person who is bullish on gold. And we are at an intermediate sentiment low for gold.
You can read our latest gold report here for free.
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