Yesterday, we witnessed a 2,5% drop on the DAX within the course of 5 minutes. There wasn’t a single news story that explained the sudden drop, so conspiracy theories and rumors naturally had to surface. Surely it was a “robot” that had run amok, or was it the immanent downgrade of Germany, or (non-existing?) rockets fired at Eliat in Israel… Read more

Tags corrective waves - derivatives trading - dominant trends - market psychology - robot crash - sentiment volatility

We currently see a market trend rebound. SentiTrade’s 38 day moving average yesterday crossed above the 200 level for the first time since June 9th 2011. Interestingly, the DAX accomplished the same, the day before yesterday.
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Tags bull bear psychology - corrective waves - crowd psychology - dax index - investment strategy - low point - market trends - pattern recognition

In last week’s blog post we noted several similarities between today’s market situation to that of 2008. Then as now, we see lower levels in market sentiment volatility coupled with a momentary upswing in SentiTrade values. As forecasted, this brought the DAX to higher levels this week. Read more

Tags bull bear indicator - bull bear psychology - corrective waves - crowd psychology - excessive investor optimism - market reversal - sentiment volatility

Following our mention of sentiment “trigger points” last week, we received several questions on how SentiTrade identifies momentum in market psychology. Normally, trigger points refer to psychological price levels that will “trigger” certain behaviors. For example, if prices of gasoline suddenly rose to €2 per liter, it is reasonable to assume that driving patterns will change. The cost of driving traditional cars, may furthermore “trigger” an increase in sales of hybrid- and electric cars. Read more

Tags asset allocation - bull bear psychology - computer linguistics - confirmation bias - corrective waves - derivatives trading - investment strategy - market prediction - market psychology - market sentiment - overreaction hypothesis - risk on risk off - sentiment trigger point

The Elliott Wave Principle states that markets move in natural patterns according to changing investor psychology and price momentum. Specifically, crowd psychology will move from optimism to pessimism, and back up again, making it possible to forecast the progression of certain market trends. Elliot’s model states that the trends move in a total of 5 waves. In a bull market a dominant trends is found in wave 1, 3 and 5, whereas waves 2 and 4 will be corrective waves (see illustration below).
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Tags corrective waves - crowd psychology - dominant trends - investor psychology - market trends - pattern recognition - psychology trends