Market sentiment aggregates the collective emotions, expectations, and biases of all market participants into a directional lean. It is distinct from fundamental value — sentiment can push prices far above or below what underlying earnings or assets would justify, and these sentiment-driven dislocations can persist for months or years. Sentiment is measured through various proxies: news tone (the language used in articles and analyst notes about a stock), options market positioning (put-to-call ratios), short interest (the percentage of shares sold short), survey data like the AAII Investor Sentiment Survey, and fund flows. Contrarian investors pay close attention to extreme sentiment readings because very high bullish sentiment means most potential buyers have already bought, reducing the remaining pool of new demand. DailyIQ's sentiment score uses natural language processing on news articles to measure the tone and volume of coverage around individual stocks.
