Today is the first time in 2014 we see more than 500 losers in our local bourse as the sentiment took a dive after a few days of rally among a number of small caps and pennies. Looking at the Sentiment Analysis Trend Indicator, it is clear that the sentiment is expected to worsen in the coming days. The Sentiment Trend shifted from bearish to bullish (meaning the overall environment is condusive for trading and the probability of winning is much higher) on the 31st of December 2013 as it created a higher high and today it shifted back to bearish (lower low detected). At this period of time, it is highly advisable to stay out of the market or at the very least, reduce your position in the market. Regardless of how good your analysis is, share price could hardly rise when the sentiment is bad.
[What is Sentiment Analysis?] Technical analysts trade based on probability. When we say a method under Technical Analysis (TA) has a success rate of 80%, it implies that there are time when such method perform better than its average (probably as high as 90% or more) and there are also time when using it doesn’t give you a distinct advantage (probability of winning could be 60% or even 50-50). Wouldn’t it be good if we can identify the time period when TA works at its best so that we could choose to trade during this period only, or take larger position during this time? Sentiment analysis does just that. It helps in identifying good or bad time to trade in our local market.