Friday, 9 December 2011

The Metallica Indicator

One of my favourite bands Metallica have gone hugely short the EUR/USD by bringing forward a European tour from 2013 to 2012. Their manager says “over the next few years the Dollar will be stronger and the Euro weaker”.

With sentiment reaching such a bearish extreme for the EUR/USD, how much further downside can there possibly be? Contrarian indicator maybe?

Just to clarify, it's not Metallica effectively being short that provides a contrarian signal. The music press reporting it provides the signal, as it's a sign of extreme sentiment toward the market. The editor of the biggest music rag in the UK has decided that the kids want to read about Euro weakness.... that's a whopper of an extreme. When sentiment in any market reaches an extreme, there's nothing it can do but turn around, taking the market with it.