"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.