Weekly Lesson Wednesday📝 

Market sentiment indicators 💹 

^_Lesson
Bullish or Bearish ?

Alright, so what is market sentiment ? It’s basically an indication of the mood and feeling in the stock market. As we all know psychology and emotions are huge factors in investing. Investors even if they like it or not, operate some what using their emotions. Whether it is buying into the hype on some new meme stock or if it’s sending your exit point for the chance of a 1000x.

So, today for the lesson I am going to give you a few ways to monitor investors feelings.

1️⃣ VIX : VOLATILITY INDEX

The CBOE Volatility Index measures the expected volatility in the S&P500 and is essentially a proxy of investors fear. The VIX and S&P move in opposite directions. Spikes in the VIX might signal the end of short term downtrends and market bottoms. The index produces various levels that indicate investor fear or lack of fear in the market.

In general, VIX values of greater than 30 are considered to signal heightened volatility from increased uncertainty, risk and investor fear. VIX values below 20 generally correspond to more stable, less stressful periods in the markets.

2️⃣ FEAR AND GREED INDEX

The Fear and Greed Index gauges mood in the market and investors emotional state. The index factors in several variables. For example, market momentum, stock price strength, junk bond demand, market volatility and safe haven demand. If you are a long term investor, you shouldn’t be too worried about this as you have longer time horizons and you don’t have to worry about short term market fluctuations. This index fluctuates a lot and it mostly refers to week-to-week sentiment with little or no long-term relevance.

The theory is based on the logic that excessive fear tends to drive down share prices, and too much greed tends to have the opposite effect. 0 representing extreme fear, 50 denoting a neutral sentiment, and 100 signifying extreme greed. So the idea is to use the index and buy when the share prices are down.

3️⃣ AAII Investor Survey

The AAII investor survey offers insights on whether investors are bullish or bearish for the next 6 months. The survey has been asking investors opinions since 1987. Investor sentiment is measured with a weekly survey. Though correlations between sentiment levels and market direction have appeared in the past, the AAII Sentiment Survey does not predict future market direction. Overly optimistic and pessimistic investor attitudes are characteristics of market tops and bottoms, but they do not cause stock prices to change direction. However, it still holds up as a nice gauge for where the market is heading.

4️⃣ PUT/CALL RATIO

To simply put it, the put/call ratio is all the puts traded for the previous week and divide by the weekly total of calls traded. If traders are buying more puts than calls, it signals a rise in bearish sentiment. If they are buying more calls than puts, it suggests that they see a bull market ahead. The way to read the ratio is as follows.

Summary ⭐

With these tools help gauge market trends and investor emotions for informed investing. If you are ahead of the curve and can be emotionless when others are panicking or being greedy. You will thrive.