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(VIDEO) European Stocks: Market Sentiment Tells A Story
Most investors become increasingly bullish as the market advances and increasingly bearish as it falls.
"Sentiment is the filter through which investors and analysts evaluate everything they know and think about stocks. For example, when sentiment is positive, both a 52-week high and a 52-week low look like buying opportunities." – Tom Denham, editor of EWI's European Financial Forecast Service.
It's a relevant quote, because investor sentiment in Europe happens to be mediocre right now. The Daily Sentiment Index – where readings below 20 indicate an extremely bearish sentiment and those above 80 indicate extreme bullishness – is not exactly scraping the bottom, but it has seen better times.
It's not surprising, considering the sizable decline that Germany's DAX, Europe's benchmark stock index, has suffered since mid-May. The sad irony, of course, is that most investors become increasingly bullish as the market advances and increasingly bearish as it falls. As a result, people tend to become most bullish at tops and most bearish at bottoms – in both cases, holding the bag, as the saying goes.
That's why the Daily Sentiment Index indicator can be such a useful tool. Watch Tom Denham, EWI's Senior European Equity Analyst, explain how to use it to your advantage is this free 3-minute video he recorded for subscribers on July 2.
NOTE: Your need a free Club EWI membership to watch this video.