Sentiment Analysis

What is Sentiment Analysis?

Sentiment Analysis is the process of gauging the emotional tone behind words, news, social media, and price action to determine how investors feel about a stock, sector, or the broader market. It’s the intersection of data science, behavioral finance, and market psychology.

While Technical Analysis looks at what the market is doing, Sentiment Analysis asks how people feel about it—and often, why.

LotusBee’s Perspective

At LotusBee, we treat Sentiment Analysis as a market mood board—a pulse check that tells us how hot or cold the emotional temperature is. It doesn’t replace fundamentals or chart setups, but it sharpens our timing and strengthens our conviction.

By combining Sentiment + TA + Macro context, you’re not just reacting to the market—you’re anticipating it.

Why Sentiment Matters in the Market

Markets don’t move on logic alone. They move on fear, greed, and expectations. Understanding sentiment gives traders and investors a massive edge—especially in short- to medium-term trading.

Here’s why sentiment is powerful:

  • Identify Extremes: Catch euphoric tops or fearful bottoms before prices react.
  • Gauge Herd Behavior: Spot when the crowd is too bullish or bearish.
  • Complement TA & FA: Sentiment adds a third dimension to traditional analysis.

Key Sentiment KPIs

Here are the core metrics that help quantify the market’s emotional state:

1. Put/Call Ratio (PCR):

  • Measures the volume of put options versus call options.
  • A high ratio = bearish sentiment; a low ratio = bullish exuberance.

2. Fear & Greed Index (CNN):

  • Tracks emotions across 7 market indicators (volatility, safe-haven demand, etc.).
  • Extreme readings often precede reversals.

3. Volatility Index (VIX):

  • The “fear gauge” of Wall Street.
  • Rising VIX = uncertainty or fear; falling VIX = calm or complacency.

4. Social Media & News Sentiment:

  • AI-powered tools scan platforms like Twitter, Reddit, and financial headlines for tone and volume of buzz.
  • Useful for tracking meme stocks or sudden momentum plays.

5. Institutional vs. Retail Flow:

  • Watching ETF inflows/outflows and hedge fund positioning reveals what “smart money” is doing.