The way to look at the charts is that the underlying mood about a particular stock or financial security leads the eventual direction of the price movement. It's pretty obvious from a common sense standpoint that when the public doesn't like a stock, its price goes down... when everyone absolutely hates that stocks guts, it's usually an indication that it's undervalued in relation to its fundamentals and it might be a good time to pick it up while it's on sale... Likewise, when everyone is enamored with a stock, it's probably overhyped and a good time to sell into it... By looking at this simple graph, you can clearly see that there's a distinct connection between the two, and that sentiment leads price movement for sure. The ECB recently came out with a study that confirms the concept of sentiment leading price... PsychSignal has an algo here that shows it plain as day! :)
We built a Trader Mood Index. The oscillation between periods of bearishness and bullishness is intended to precede market turns. If you're a Quantopian user and want to play around with the raw data in an algo feel free to access the raw data here: https://psychsignal.com/data/mood-index
