Staying in sync with market sentiment has been as tough as keeping up with the Kardashians these days, so I’ve rounded up a few tools that might help us out.
CFTC Commitments of Traders Reports
If you’ve been following my blog for quite some time, you’d probably know that the weekly COT report is one of my all-time favorite tools for gauging big shifts in risk sentiment or pinpointing potential market tops or bottoms.
These numbers from the CFTC indicate the net positioning of non-commercial forex traders against the U.S. dollar, so it provides a snapshot of how market players are betting for or against particular currencies. In addition, tracking the changes in positioning from one period to another or over the course of a few weeks also gives an idea of how the tides are turning.
Our School of Pipsology lesson has a step-by-step guide on how to access the COT report, interpret the numbers, and predict reversals from extreme positioning. This can be very helpful for swing traders who want to find out whether a long-term move still has some legs or if it’s already overdone.
FXCM Market Data Signals
Just recently, FXCM shared a new tool that can help traders view market positioning based on big data, as well as open positions with the broker.
In particular, the Market Data Signals tool that can be accessed through FXCM’s website or their Twitter account shows a couple of indicators: the Speculative Sentiment Index (SSI) and the Grid Sight Index (GSI). The former is derived from the trading book while the latter is based on historical patterns and trends related to the currency pair.
— FXCM Market Data (@FXCM_MarketData) June 28, 2017
Apart from major currency pairs, you can also take a look at market sentiment on assets like gold, crude oil, or stock indices.
Fear & Greed Index
Other useful indicators in tracking market sentiment include the CBOE put-call ratio, S&P 500 index, VIX, the McClellan Volume Summation Index, junk bond demand, safe-haven demand, and the list goes on…But instead of getting bogged down by analysis paralysis (also known as TMI or TL;DR), wouldn’t it be great to have all these data summed up in one neat figure?
Enter CNN’s Fear & Greed Index. This looks at seven indicators of market sentiment to gauge which emotion is driving investors these days. The principle behind it is that traders react to either fear or greed, in which an excess of the former could lead to a bear market while too much of the latter could spur a bull market.
After plugging in the indicator values into the magic formula and adding a pinch of salt and pepper, a final reading is generated to show the current emotion driving the markets and its intensity, like so:
As you can see, the index shifted from fear a week ago to greed as of June 28, which is in line with the pickup in higher-yielding currencies like the comdolls so far this week.
Got any other helpful tools that you use to gauge overall market sentiment and potential changes? Don’t be shy to share ’em with your fellow forex folks!