News Sentiment & Market Psychology Guide (News Sentiment)

1. Overview of News Sentiment & Market Psychology

Financial markets are driven by waves of human emotion. Mass pessimism or euphoria, amplified by media headlines, generates short-term price deviations from intrinsic values.

This guide details how to track and execute trades based on media sentiment indices (Sentiment Score).

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2. Key Sentiment Metrics

① News Sentiment Score

• Definition: A score extracted from global news headlines via natural language processing, ranging from -1.0 (extreme fear/negativity) to 1.0 (extreme greed/optimism).
• Significance: Serves as a real-time monitor of institutional and retail market psychology.

② Volatility Index (VIX)

• Definition: Standard gauge of S&P 500 options implied volatility, commonly referred to as the 'fear index'.
• Significance: Spikes in VIX represent near-term capitulation and retail panic.

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3. Sentiment Anomalies: Exploiting Media Fear

• Media Bias and Price Disconnections:
  • Financial media amplifies negative headlines to capture attention. When the Sentiment Score drops below -0.4, retail capitulation is triggered, driving quality assets below their fundamental values.
  • By cross-referencing this score with long-term 200MA disparities, investors can execute contrarian purchases and buy assets at temporary discounts.

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4. Practical Trading Applications

1. Identifying Sentiment Regimes:
   • >= 0.4 (Greed Regime): Unrestricted media optimism. retail investors chase performance, but institutional players take profits. Avoid new long entries.
   • <= -0.4 (Fear Regime): Overwhelming panic. If underlying company fundamentals remain intact, prepare buy orders to capitalize on the oversold dip.
2. Capitulation Troughs:
   • The confluence of a spiking VIX and a negative sentiment score often marks the bottom of short-term corrections, presenting high-probability entry targets.