16. Sentiment

The least-understood area of analysis is sentiment analysis. This covers such areas as degree of speculation, public opinion, and consensus. It is measured by relative activities in speculative instruments, such as options and polls of bullish opinions. Both rely on the “burning match” theory in which the flame is passed from investor to investor until there is nobody left to take the match. The last one holding it gets burned, literally.

In the markets, as bullish opinion spreads, eventually everyone will have bought. There will be nobody left to whom the last investors can sell. No demand means the end of the rally. This can also be measured subjectively in the media, as glowing bullish news is reported only when the ...

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