Market sentiment refers to the collective sentiment towards a specific entity or financial asset. It is a term to describe the tone or mood of a market. This is typically measured through quantitative methods by tracking movement in price, volume, or otherwise combination. The most common way people desribe the market sentiment is through the terms bullish and bearish. When a security's prices are rising (or there is reason to believe prices will rise) it is deemed bullish. When a security's prices are falling (or there is reason to believe prices will decline) it is deemed bearish.
- Market sentiment refers to the reflection of the collective feeling, tone, or mood
- The term bullish is used to describe sentiment when price movement is rising
- The term bearish is used to describe sentiment when price movement is falling
Sentiment Analysis describes a group of methods used to determine whether text is positive, negative, or somewhere in between. It ranges from simple methods of just looking for certain words, all the way up to monstrous machine learning models trained on thousands of sentences, phrases, and language processes.
Investors looking to trade a specific security may look to the market sentiment to understand the collective emotions surrounding the company within a given time period. Price is constantly changing depending on the performance of the company, analyst news, and/or external market factors. The quantitative measuring of sentiment can be a leading indicator of price movement.
- Market sentiment can be used as a leading indicator in price movement
Many technical indicators exist as methods for measuring market sentiment. Common tools, such as CNN's Fear & Greed Index, track the price movement in the S&P 500 and market data to determine whether the market is 'fairly priced'. While tools like this are effective in the ability to provide benchmarks of where sentiment is or has been, it falls short as a leading indicator due to the inability to identify context.
Babbl is a sentiment measurement platform that solves this problem by analyzing the surrounding text and mentions of tickers in thousands of news articles. In doing so, Babbl is able to develop time-related indicators to only show sentiment narratives as they relate to the past and future. Check out the free tools available for tracking market sentiment on the Babbl platform here.
- Many market sentiment tools fall short in taking into consideration the context