As we continue to hear talks of a looming recession and mounting investor disappointment, you may begin to wonder exactly how these bearish expectations have an impact on the stock market

Market sentiment like this is present in all stages of a market cycle, but just like learning how inflation affects the stock market, understanding how investor consensus can cause price swings and volatility is a crucial part of keeping your portfolio profitable no matter the market conditions. It’s also important for keeping you sane during these uncertain times.

So what is sentiment in stocks, and how does investor sentiment dictate what occurs in the markets? First, let’s get on the same page with a market sentiment definition. Then we can begin to discuss how investors & news outlets influence the stock market and the various indicators to look out for. 

What is Market Sentiment Definition?

Let’s begin by providing a market sentiment definition before we dig into what does sentiment mean in stocks. Essentially, market sentiment is the overall consensus among investors around the current state of the markets or a given security.

With this in mind, the general attitude among investors can cause fluctuations and price movements in the stock market. A common example of stock market sentiment is that prices rise when there’s a bullish market sentiment, and fall when investors are feeling bearish. 

The Role Investor Sentiment Plays in Influencing the Stock Market

So now with a better understanding of what market sentiment is, we can begin to look into what does sentiment mean in stocks. Investor sentiment is often driven by emotion and feelings over the actual performance of a business. Thus, having a good gauge of market sentiment at any given time can help investors time the markets and identify attractive trading opportunities. It will also help you gain a sense of why things are happening when they happen.

In a sense, investor sentiment is acknowledged to be a self-fulfilling prophecy. For example, if business performance and fundamental indicators are still trending up, just at less growth than in previous periods, a bearish sentiment may begin to take hold. As this pessimistic consensus becomes a part of the mainstream conversation, investors may begin to sell off positions, causing prices to fall and bear market conditions to appear.

So, investor sentiment can be responsible for moving the markets, despite not always being based on fundamentals and concrete evidence of a downturn. At the end of the day, perception is reality, and how investors feel about the markets will create the conditions that they’re anticipating. 

Thus, having learned what is stock sentiment and how investors can influence the markets, you’re probably wondering to yourself – are there concrete ways to analyze stock market sentiment that can give you a sense of investor consensus? Let’s take a deeper dive into this question below. 

Can You Analyze Stock Market Sentiment?

The good news is that even though stock market sentiment among investors isn’t always based on fundamentals, there are still a number of indicators that experts follow in order to get a good read on how investors are feeling about the equities market.

The various investment strategies that people use will dictate how they analyze stock market sentiment and what investment decisions they will make based on it. For example, given how swing trading works, swing traders may look for technical indicators like signs of new volatility or stabilization that can help them exit and enter positions in a profitable manner.

On the other hand, investors can also manage the risk of options trading by analyzing investor sentiment. With an early indication of bearish or bullish sentiment, investors can make the necessary trades to keep their portfolios profitable and execute a new strategy based on the current market conditions and investor consensus. 

Additionally, contrarian investors may analyze the current market sentiment and make their trades in the opposite direction of the overwhelming consensus. For instance, if the investor sentiment around a specific security is bearish, contrarians will buy the equity instead. 

And if you want to learn more about swing trading, check out our Swing Trading Guide for Beginners. For now though, let’s discuss an important question related to the topic at hand: what is market sentiment indicated by?

What is Market Sentiment Indicated By?

What is stock market sentiment indicated by? Well, there are a number of factors that experts focus on to help them determine the slant of investors at any given time. Continue reading as we cover some of these main investor sentiment indicators that you can keep track of for yourself: 


This is a commonly-used indicator to analyze market sentiment, and is also widely referred to as the fear index. The CBOE Volatility Index, or the VIX, tracks options prices and expected volatility in the next 30 days. Thus, its movements can help investors recognize what to expect in the near term.

While the intricacies of how this index works can be fairly complex, what the movements of the VIX indicate are pretty straightforward. For example, a rising VIX indicates investors will need to protect themselves from rising levels of risk amid greater volatility. On the other hand, a lower VIX indicates that volatility is low. Even still, the VIX isn’t able to show which direction the markets are headed in, though it does do a good job tracking volatility. 

Bullish Percent Index

Additionally, the bullish percent index (BPI) tracks the number of stocks with bullish patterns. A good rule of thumb is that a BPI above 80% shows extreme optimism in the markets, indicating that stocks may be overvalued at current trading levels. On the contrary, a BPI below 20% typically means the market sentiment skews more negative and stocks could be undervalued.  

The High-Low Index

Another valuable indicator to see what does sentiment mean in stocks is the high-low index. This compares the number of stocks hitting 52-week highs to the number hitting 52-week lows in a given index like the S&P 500 or Nasdaq. An index under 30 signifies a bearish sentiment, while 70 or above indicates investors are feeling more bullish. 

The Commitment of Traders Report (COT)

The COT is another common indicator of investor sentiment in the markets. It tracks the sentiment among commodity traders, reporting the futures holdings of a select group of these professionals. Contrarian investors often utilize this index as a way to analyze the current sentiment in the markets.  

Moving Averages

Lastly, many investors will rely on moving averages in order to gauge investor sentiment. Common moving averages include the 50-day simple moving average and the 200-day simple moving average. 

As a rule of thumb, when the 50-day average rises above the 200-day average, sentiment has shifted positive and signifies a bullish sentiment. On the other hand, if the 50-day average crosses below the 200-day average, there appears to be bearish sentiment in the markets and falling prices. 

The Easiest Way to Gauge Current Stock Market Sentiment

Keeping the above indicators in mind, you can clearly see how complex tracking investor sentiment can become, and the various nuances that may be at play that can skew the markets in one way or another. What if there was a way you could open up your computer (or mobile phone) and see a broad overview of the market sentiment at any given time? What if you didn’t have to stay up on all these indicators on your own?

Fortunately, there is a way.

At VectorVest, we’ve created a groundbreaking solution for investors who want to gain clear insights into the equities market. Our stock software makes it simple to earn money in the markets at any given time. Not only does it feature a host of stock forecasting tools to help you uncover opportunities and time your next entry or exit to perfection. But, it also grants you constant insight into the current stock market sentiment. 

You can see how other investors feel about current market conditions at any given time right in your dashboard. During times when more and more  investors draw back on their positions and move to cash, you’ll be the first to know.

These capabilities are extremely powerful for investors. While you can be on top of every market sentiment indicator out there, there are additional factors and fundamentals that we track and take into consideration when advising investors if they should remain in the market or pull out. Otherwise, it would be a full-time job to track all of these indicators–which nobody has the time for. See the difference yourself with a 30-day trial – and you’ll never go back to investing the old way.

What is Sentiment in Stocks? Wrapping up our Breakdown on Investor Sentiment

So if you’ve ever been curious about what is sentiment in stocks and how it can shape the equities markets, this guide can give you more clarity around how it works and the various indicators investors can analyze in order to time the markets correctly.

As we’ve discussed, investor sentiment isn’t always based on fundamentals; rather, it’s largely based on the feelings and emotions that investors have around where the market or a specific security is headed. So, it can be tricky to keep track of all the indicators and analyze the consensus in a way that provides you with actionable insights about which trades you need to be making and when.

With VectorVest, you can completely take yourself out of the guessing game and gain concrete recommendations about what to buy and when to buy it. There’s an opportunity to make money in the markets no matter the conditions, you just need to be strategic about it and utilize the right tools in order to make it happen. Sample VectorVest and get a free stock analysis today.

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