How to Spot Sentiment-Driven Price Moves...

The Penny Sleuth Features: Penny Stocks, Options and High-Growth Opportunities! How to Spot Sentiment-Driven Price Moves… By Abe Cofnas November 30, 2010 The last few years have shown investors just how important market sentiment can be in determining price movements. Now, with the end of 2010’s trading within sight, I wanted to clue you in on another way to gauge sentiment going forward. With this strategy added to your technical tool box, you’ll have a better chance at spotting significant sentiment shifts – and at making profits in this market… As you know by now, I am a “sentiment” analyst and trader. I focus on carefully quantifying bullish versus bearish sentiment in the currency markets. But how, exactly, is sentiment measured? That’s a key question. There are a lot of ways. Billionaires Use Code-Cracking Technology to Predict Stock Prices! There’s a big wealth-exploding secret Wall Street is hiding from you… A few firms, including the world’s largest brokerage house, are making a fortune with it. By one estimate, Wall Street is making $57 million every day profit with this secret. Now, you can use this strategy for your portfolio. Click here to learn how it could have already made you $99,100 richer… Among the most popular is the concept of a trend — the general direction in which something moves. An uptrend indicates a bullish dominant sentiment and a downtrend the opposite. I think, though, there are better ways to understand and map sentiment. In fact, I believe there is an excellent tool to track sentiment and quantify it. I have written about it in my book, Sentiment Indicators (Bloomberg Press), and introduced it to you a few weeks back. Today I want to go a bit deeper as I use this method to show you my latest findings on the U.S. Dollar Index. Look at the chart below showing the U.S. Dollar Index movements each day: If you’re familiar with technical charts at all, you’ll recognize that it’s not a candlestick chart. It is called a price break chart. It shows consecutive daily new high closes (white) and consecutive daily new low closes (black). If the U.S. Dollar Index doesn’t move enough to create a new high or a new low, no new bar is added. If the price moves enough to take out the previous three high closes, sentiment is considered reversed and we add a black bar. If the price moves enough to take out the previous three low closes, we switch back to using white bars. 6 Penny Stocks to Own Right Now… Penny Stock Fortunes is giving away SIX penny stock recommendations to all new subscribers! But you must hurry because these plays could explode at any time. Click here to watch the presentation now. This kind of chart really shows the ability of bullish or bearish sentiment to persist over time. And looking at the chart, we see very strong bearish dollar sentiment since June. It led to 18 consecutive new daily low closes. We also see that right now the index is in a slightly bullish reversal, with three new high closes. In short, the U.S. dollar bears have had a challenge lately and couldn’t persist enough to keep a streak going. So the market sentiment on the U.S. dollar has shifted. Keep in mind, this is not a prediction of future direction. It is a description of current facts. It is also important to quantify the size of the move. We can see that the white bars are not large. They are medium-sized, and a clue to future direction will be whether they get larger, showing stronger sentiment, or compress, showing signs of weakness. An interesting fact is that over the past two years, bearish sentiment sequences are longer and stronger than bullish ones. When there have been bullish shifts on the U.S. Dollar Index, they did not achieve consecutive new highs more than 11 days in a row. Put differently, bearish sequences have outperformed the bulls. The tactical implications are very important and lead to support of a contrarian understanding of market moves. When the U.S. Dollar Index is in an extended period of either lows or highs, expect it to be punctuated by reversals. When the market shows choppy periods, it indicates a period of indecisiveness. This is the current environment, where there is a vast uncertainty about the Fed’s ability to restart economic growth. Choppy markets feed on themselves as they digest any bit of information to re-energize bullish or bearish sentiment. You Could’ve Made $123,850 by Breaking the Rules! Wall Street’s been secretly breaking the rules for years – now you can too! My STORM strategy for latching onto penny stock trading setups has already made thousands of dollars for a small group of BETA readers. Now, I’m opening up my research to new readers for the first time ever. Click here for the full details… Ultimately, the key driver is surprise. You can bet that the most likely outcome during any week is the unexpected, leading to price movements through less probable barriers… making every week an exciting ride! I hope this little analysis whets your appetite for more sentiment indicators. The more you understand the forces that moves markets, the better you’ll get at playing them. Regards, Abe Cofnas Check Out This Canadian Penny Stock! This Canadian penny stock play just won the rights to an estimated $172.5 billion oil bonanza... The profit potential could be enormous for investors who get in early. Resident geologist Byron King has all of the details in this exclusive video presentation. There’s still time to get in... 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