How can you tell when the crowd is over-optimist or over-pessimist?

[ElCubano]

Quote from brownsfan019:

That's pretty dead on. When I was a broker, no one wanted to invest when the market was down or flat. They only want to invest AFTER the market has moved substantially.

When you start hearing your neighbors talk about stock picks again (when was the last time Joe Schmoe had that 'can't miss pick'?), then you know something is up.

just like our last buuble....everybody was a flipper. They had like 5 reality shows on flipping properties....Look at how many got left with the spatula in their hand......now flipping burgers...

the same when the tech bubble...even the gardner was talking to me about JDSU and NTBK and how he tripled his money in one trade...

 

[monty21]

One sentiment indicator I like is the put/call ratio. Unfortunately it is not a day trading tool but is more relevant to swing trading.

When people are excessively buying call options, it signals a top for me. I assume that when these high prices never come, people will sell their positions. Plus you have the sellers who have been trying to push it down by calling a top in the first place.

I will say that calling bottoms is safer than calling tops considering the overall bullishness of the market. But this is more relevant to the long-term and not short-term trading. I would surely not call tops/bottoms on new made highs/lows over a longer trend where no support/resistance is seemingly in sight.

 

[NoDoji]

Stochastics in the time frame you're trading are a good signal to get your attention. Then allow some room for greed/fear to play out before fading.

Also check short interest when you think the crowd is over-optimistic. The latter part of a big rally could be nothing more than over-pessimistic shorts throwing in the towel. Try not to become one of them by fading the move too soon or too large.