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Tenorio Research Market Analysis

Introduction to Sentiment

Sentiment measures market opinion in one of several ways. One way is by polling market players--traders, investors, advisors--as to how they "see" the market. Are they bullish or bearish? There are several excellent firms which do polls of various markets. Another way to measure sentiment is by looking at what market players are actually doing. One popular measure is the daily ratio of the volume (or open interest) of stock or index put and call options.

Inherent in most sentiment analysis is the notion that the majority is almost always wrong, hence sentiment is normally viewed through contrary opinion glasses. If puts are most in demand, or most advisors are bearish, this is generally considered bullish.

In futures markets the Commodity Futures Trading Commission (CFTC) publishes data on open interest (positions held overnight) biweekly. These data are broken down by category of trader and by number of positions long and short. It is generally believed that the "commercials" who are the trade (producers or large users) are the best informed, with large speculators next, and "other" or small speculators last. This is another form of contrarian sentiment analysis.

Sentiment, properly understood, is one of the most important aspects of market analysis. Unfortunately there are no outstanding books on the subject. This is an area which Tenorio Research will cover in some depth in current research and comments and our publications.