Market Sentiment

Market sentiment is the attitude of market participants towards a security’s future prospects. Market sentiment may or may not be accurate in reflecting a security’s prospects. Contrarians tend to invest against the prevailing market sentiment, believing  that strong sentiment may signal future reversal.  Highly bullish or bearish sentiment has usually marked market peaks and bottoms. However, Greenspan notes that practitioners of failed contrarian bets are rarely heard of and that is a warning in itself.

There are many indicators that attempt to gauge market sentiment including odd lot short sells, put/call ratio etc.

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