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Investing tool: interesting sentiment indicator for overbought/oversold

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Check out what Dr. Richard Peterson is doing at MarketPsych.

He’s done perhaps the deepest research into different sentiment indicators in the stock market. He’s got so many emotions to describe the activity in social media that it sounds almost like he’s anthropomorphized the markets and market chatter.

Here’s one tool I think is particularly cool. His firm is out culling for measures of positivity. He’s then plotted that measure over recent stock returns to get a measure of overbought and oversold, depending where the stocks plot out. Almost like crowdsourcing investment ideas — but really doing it.

This chart updates every morning with new stock picks but the idea here is that you’re looking for divergence in sentiment — where sentiment breaks off from actual stock performance. You’re going to want to look in the upper right and lower left “quadrants” of the graph.

 


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