Section 12: Sentiment
This section addresses the non-price related aspect of Technical Analysis. The readings of investors’ opinions independent of the bid-ask spread are indicators of investor sentiment. These indicators can be highly useful as supporting evidence to establish market peaks and bottoms.
Option Related Indicators
Taking either the amount or the volume level of options related to equities is one of the most popular sentiment indicators.
Open Interest
Similar to Options, the Futures contracts can be assessed by the number of contracts written over time. Such a measure is called Open Interest and is an indication of the willingness of traders and investors to take on risk.
Contrary Opinion
One who gauges investor sentiment and then acts in the opposite manner is said to embrace Contrary Opinion. He is referred to as a Contrarian.
