Market Sentiment Analysis

Market sentiment analysis is a type of analysis that many individuals use to make stock trading decisions. Market sentiment is essentially the overall feel of the market. This could be described as what the majority of traders in the market feel about a particular security or the market as a whole. There are many different ways that you could potentially analyze market sentiment. Here are a few of the different methods that are used.

Common Sense

When looking at market sentiment, you need to try to use common sense as much as possible. When you get a general feel for which direction the market is moving, you should most likely not try to be brave and go against the market. If you think that the market has a positive feel to it, you should most likely buy. If you feel that the market has a pessimistic feel to it, you should most likely sell.

Put/Call Ratios

One of the best ways to measure market sentiment is to look at the put/call ratios of securities. Put and call are two types of options that you can put in on a security. If there are more put options than call options, this is a good indication that the market believes that the security will go down. If there are more call options than put options, this is an indicator that the market is bullish on that security. While this is not a hard and fast rule, it is frequently the case.


The VIX is an index that measures volatility in the market. This is also sometimes referred to as the "fear index." If the index goes up, this is an indicator that investors are scared. Typically, when the value of the Dow Jones Investor Average goes up, the index typically goes down. This is a very popular indicator that is used to gauge market sentiment.

Market Conditions

In addition to looking at specific indicators like VIX and put/call ratios, you can look at the general market conditions. When trying to decide whether you should buy or sell a particular stock, you need to look at which direction the market is moving as a whole. Many companies and individual investors use the Dow Jones Industrial Average and the S&P 500 to gauge what the overall market is doing. If you are thinking about buying a stock, you might want to make sure that the overall market is moving upward as well. If you are going against the market, you should have a very good rationale for doing so.


In order to stay on top of market sentiment, you also need to keep track of news events that take place in the world. You should look at political announcements, company reports and other economic news events to gauge the market sentiment. These news announcements can have a profound effect on the market overall.

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