Journal of Agribusiness 21,1(Spring 2003):39S64 © 2003 Agricultural Economics Association of Georgia The Theory of Contrary Opinion: A Test Using Sentiment Indices in Futures Markets

The theory of contrary opinion predicts price reversals following extremes in market sentiment. This research tests a survey-based sentiment index’s usefulness as a contrary indicator across 28 U.S. futures markets. Using rigorous time-series tests, the sentiment index displays only a sporadic and marginal ability to predict returns, and in those instances the pattern is one of return continuation—not reversals. Therefore, futures traders who rely solely upon sentiment indices as contrary indicators may be misguided. Key Words: bullish consensus, contrary opinion, market sentiment Market sentiment can be an invaluable tool when it comes to picking market turning points. When sentiment readings reach an extreme it gives you an alert to a possible turn in the market. It signals an imbalance in the market; if 90 % of traders are bullish at the end of the day, who is left to buy? The futures market lends itself to be an ideal market for this type of analysis. — Daily % Bullish, October 2000 For many years, sentiment has been widely used as a contrary opinion indicator i