But if sentiment is bullish why would price retreat?
You would think that bullish sentiment would be a driver, but in reality, often the lopsided boat of sentiment drives price in the opposite direction. Yes/no?
Price Drivers
- Thread starter themickey
- Start date
You would think that bullish sentiment would be a driver, but in reality, often the lopsided boat of sentiment drives price in the opposite direction. Yes/no?
Correct. Sentiment creates imbalance at price levels. Sentiment drives price. Sentiment can be seen in charts.
Therefore sentiment is an anti-driver
I don't quite understand what you're asking.
Are you asking why price pulls back in a 'bull market'? Surely that's obvious?
My opinion, price pulls back in a bullmarket because traders are scalping as such.
Selling strength, buying weakness.
But if that is the case, it indicates there are stronger traders about than investors, ie traders have control.
Or maybe an institutional investor or a sum of small traders decided to take profits for whatever reason. I'm not sure if this line of inquiry will help you.
What do you think?
Well getting back to original idea:
"Is it possible that it's not supply and demand which most often determines price direction but market sentiment?"
I'm probably going to answer my own question, traders are stronger than investors, traders are stronger than fundamentals maybe 90% of the time, we can have an opinion on direction but whichever way price goes, traders will reverse it.
Not to get all geeky or anything, but if you want to think Old School a minute, the initial question is in deep error: there is no contradiction between "market sentiment" and either of aggregate supply or aggregate demand.
In implicit form Demand is a function of [Price; Income; Market Choices {substitutes/complements}; Tastes] -- and given a hefty dose of
De Gustibus Non Est Disputandem, we don't argue about such things as Market Sentiment.
Re Supply -- S = f[ Labor, Capital, Technology] where, playing down the eminent false dichotomies in *each* of these productive assets, the most liquid one: Money, will go elsewhere when alternative uses project a better expected return. Thus, with lesser prospects in other markets, capital would be drawn to this market, available supply grows, market price falls, expected return (eventually) declines, and the capital is withdrawn/re-allocated. (And, the same in reverse: as expected returns in other markets move sentiment in the instant market to lessen, capital is withdrawn, and a declining cycle is initiated.)
Now, the slight twist here is that we're thinking about an input market, not a product market -- so "prices" become ROICs, and capital migration is seen by asset (equity shares) sell-off -- much like the market for (any other) financial products, like loans or mortgages or whatever.
But still, Market Sentiment is very much an integral part of any definition of either Supply or Demand -- and it's plenty perilous to attempt to separate them.