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Reading Market Sentiment — Bullish and Bearish

In technical analysis, sentiment comes in only two flavors — bullish (the price is going up) or bearish (the price is going down). At any moment in time, a bullish crowd can take a price upward or a bearish crowd can take it downward.

When the balance of sentiment shifts from bullish to bearish (or vice versa), a pivot point emerges. A pivot point is the point (or a region) where an upmove ends and a downmove begins (or the other way around). At the pivot point, the crowd itself realizes that it has gone to an extreme, and it reacts by heading in the opposite direction. Another term for pivot point is key reversal.

When the crowd is reaching an extreme of emotion, it’s usually wrong. A reversal point is impending. You should do the opposite of what the crowd is doing, or at least get ready to.

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