Market Sentiment
The prevailing attitude of investors toward a market or security, independent of its fundamentals.
How it is identified
Test: measured by proxies such as put-call ratios, volatility indices, survey data, fund flows and new issue activity
Unit
qualitative
In depth
Sentiment is real in its effects — it moves prices — and hard to measure, because every proxy captures a slice and none captures the whole. Contrarian interpretation treats extreme sentiment as a signal to lean the other way, on the argument that when everyone is positioned one way there is no one left to buy. That reasoning is sound at genuine extremes and unreliable in between, and extremes are only identifiable afterwards. This dictionary describes sentiment measures and does not suggest that any reading indicates what prices will do.
Worked example
Record retail account openings, heavy new issue activity and a put-call ratio at a multi-year low together describe optimistic positioning. That is a description of the present, and it has preceded both continuations and reversals.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Market Sentiment” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.