The COT
The COT, or Commitment of Traders report, is a widely used sentiment measure for commodity traders. It reports the futures holdings of various commodity traders. Many people use this report as a contrary indicator.
Example of market sentiment
Investor sentiment has had a heavy impact on the market in the recent past. The S&P 500 dropped from 3,380 on Feb. 14, 2020, to a low of 2,304.92 on March 20, 2020, which is when the COVID-19 pandemic really got going. Businesses were closing, there were shortages everywhere, and investors were taken over by fear. Since the sentiment was bearish, this led to an incredible drop in a little more than a month.
The key point here is that the market dropped before there was any real basis for the drop. It dropped because traders were fearful of what could happen to the economy.
Later, the S&P rebounded to reach its February high by mid-August and breached 3,700 by the end of the year. It did this despite small businesses declaring bankruptcy in droves and big companies across the U.S. reporting bad earnings numbers. It happened because market sentiment had turned bullish.
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