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Definition

This term is used to describe the general "mood of the market". Sentiment is usually bullish or bearish - meaning that investors as a group are generally expecting shares to fall or rise. Sentiment generates systematic risk and causes broad sweeping trends in the market as a whole. Unsystematic risk is that which pertains to a specific company and its shares. Sentiment typically oscillates from positive to negative over fairly long periods of time which correspond to the bull and bear trends in the market. Sometimes sentiment can shift very quickly leading to a crash in markets. It is also noteworthy that sentiment throughout the world tends to be consistent. If the S&P500 index is falling on Wall Street then most probably the London Stock Exchange (LSE) will be falling, the European markets will be falling and the Tokyo market will be falling. The best way to measure sentiment is to apply a long dated moving average (MA) of over 200 days to the S&P500 index. While that MA is rising then sentiment is bullish and vice versa.

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