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Sentiment is a measure of the bearishness or bullishness of market participants. Major market turning points can be accompanied by highly skewed investor sentiment, with extreme bearishness seen at market bottoms and extreme bullishness at market tops.
There are many ways to measure sentiment. A number of surveys track the sentiment of analysts, mutual fund managers, and newsletter writers. When a significant majority of survey respondents share the same sentiment, a market turn may be imminent. For example, the Put/Call Ratio, which measures trading activity in puts and calls, signals high levels of bearish sentiment when put buying is much heavier than call buying. There many other sentiment indicators that measure the sentiment of individual investors, investment advisors, and consumers. |
