Charles Dow is consider the father of modern technical analysis and Chartism. He developed a theory about markets (in fact about stocks markets, but very useful for forex analysis too), and it could be a good reading if you want to understand what Market Sentiment means. The theory fundamental points are as follows:

1. Price discount everything. Meaning price reflects all market forces that could affect stocks, like for example, supply and demand, political factors, market sentiment and even natural disasters.

2. Price moves in trends. And so we are able to identify patterns; Trends could be bullish, when both maximums and minimums keep on being higher or bearish when both maximums and minimums keep on being lower. At the same time trends could be primary, secondary and tertiary regarding their duration. Each bullish and bearish market had typical stages as follows:
1- Bullish Market
A primary bull market is defined as a long sustained advance marked by improving business conditions that elicit increased speculation and demand for stocks; you can see that price action search for higher levels, while the secondary trend is not able to set under the last higher level.
There are three stages:
a- Accumulation
This stage almost indistinguishable from the last reaction rally of a bear market, is characterized by strong pessimism, where slowly price seems to find a bottom and firm up as investors began to accumulate establishing positions.
b- Recovering or expansion
Activity starts again, as price begins to rise; is normally the longest and represents an easily identifiable trend, as investors start recovering confidence.
c- Distribution
Market is fully active: price runs, and so volume and most investors take positions encouraged by greed.
2- Bearish Market
We define a market as bearish, when prices keep marking new minimums and the bullish corrections are not enough to reach previous corrections highs. The stages are the same as in bullish market:
a- Distribution
The last stage of previous trend, volume remains high, but price recovering starts to come down.
b- Panic
The sell pressure is much higher than buy one. Price fells dramatically and bearish movement accelerates. In this stage, is easy to see some secondary bullish reactions (corrections).
c- Despair
Sells continued: valuations are low, but the selling continues as participants seek to sell no matter what. The fundamental news are bad, the economic outlook bleak and not a buyer is to be found. The market will continue to decline until all the bad news are fully priced into stocks. Once stocks fully reflect the worst possible outcome, the cycle begins again.
3- Confirmation principle: In order to confirm a trend, is necessary that both indexes have the same trend, meaning both must be bullish or bearish at the same time.
4- Concordant volume: When a market is bullish, volume should rise during downside up rallies, but become lower when price decrease; on the other hand, if trend is bearish, volume will increase during upside down rallies and become smaller in bullish corrections. This is the same as saying that volume will come along with trend.
5- Averages are the result of each session close. According to Dow Theory, only close price must be use, without taking care of maximum, or minimums of the session.
6- Trend is valid until it is substituted by the contrary one. A trend is considered valid until both indexes confirm the contrary trend, without taking care of another possible signs. This principle was developed in order to avoid premature positions changes