The emotional analysis is a type of analysis that describes the characteristics of the trading environment and is often used in stock markets. They show us the general speculative state of the stock market from which to make trading decisions, which is quite a useful form of analysis, especially when combined with technical analysis for confirmation. timing of entry/exit. Market sentiment is often the opposite of speculative markets. Take a specific example with the rate as in Put / Call Ratio (chart below), when there is a spike in the volume of Puts versus Calls (call option), also known as the mind. The "bearish" logic is excessive, which is often seen as a bullish signal in the stock market. Meanwhile, the overwhelming volume of Calls (call options) is seen as a bearish warning. I find that CBOE's Put / Call ratio ($ CPCE) is quite useful in measuring and understanding the state of speculative sentiment towards stock prices in general. The green line in the graph below is the simple moving average of the $ CPCE (SMA10) chart, which is used to smooth the movement of the ratios to make it easier to observe. Here are some observations of this indicator (in no particular order).
  1. The $ CPCE's 10-day SMA10 reached its extreme value at the bottom of ̣ (overly bullish market sentiment) in January and February 2020. A subsequent rapid and robust sell-off resulted in a significant reversal of the indicator tell.
  2. The S&P stock index's V-shaped lows coincide with peak peaks in $ CPCE.
  3. $ CPCE's 10-day SMA is located largely in the bearish zone (Is Bullish for speculative markets).
  4. In June, $ CPCE reached its peak while $ SPX peaked and went into trading in a "Range Limit" (for about a month). The ensuing rally produced a Buying Climax in early September accompanied by a spike in $ CPCE.
  5. The current rally for $ SPX has surpassed the September highs, at the same time that $ CPCE (10-day SMA) is making the lowest of the year. The upside momentum of the equity market seems to be slowing down.
Often the cost on a buy contract gets more expensive when the Put / Call ratio indicates the demand for Buy contracts increases as traders are willing to pay higher prices at these times. In addition, overall market momentum will also tend to slow down as buy options intensify.

Another indicator of market sentiment that can be compared to $ CPCE is the ‘CNN Fear & Greed’ index. It ranges from 0 to 100. If the index is above the 90 thresholds, it will be Bullish bias while if it is below 10 it will be bearish bias. Brothers can go to CNN and type "CNN Fear & Greed" to see recent history for this metric. During the previous peak breakout period, this indicator rose above 90. Currently, this indicator is also located at 82 - That is, extreme greed:

Of course, we won't know when or how the market will react to extreme sentiment indicators. However, from these indicators, we can tell that the bullish bias is maximized and that the current trade is very crowded. It's harder to profit when the crowd has grown too large and many people are doing the same speculative operations.