market-sentiment

name: market-sentiment description: Use this skill for analyzing market sentiment from news, social media, fear/greed indices, and overall market mood to assess bullish or bearish conditions.

Overview

This skill provides guidance on interpreting market sentiment signals to understand investor psychology and potential market direction. Use this when analyzing sentiment data or gauging market mood.

Instructions

1. Understand Sentiment Indicators

Fear & Greed Index

0-25: Extreme Fear (potential buy opportunity)
25-45: Fear (cautious bullish)
45-55: Neutral
55-75: Greed (cautious bearish)
75-100: Extreme Greed (potential sell opportunity)

News Sentiment

Positive news flow: Bullish sentiment
Negative news flow: Bearish sentiment
News saturation: Often marks extremes (contrarian signal)

Social Media Sentiment

High positive sentiment: Bullish, but watch for euphoria
High negative sentiment: Bearish, but watch for capitulation
Sentiment spikes often precede reversals

2. Identify Sentiment Extremes

Extreme sentiment levels are contrarian indicators:

Extreme Fear: Often marks market bottoms (buy opportunity)
Extreme Greed: Often marks market tops (sell opportunity)
Consensus bullishness: Market may be overbought
Consensus bearishness: Market may be oversold

3. Analyze Sentiment Trends

Rising bullish sentiment: Market gaining confidence
Declining bearish sentiment: Market recovering
Rising bearish sentiment: Market losing confidence
Declining bullish sentiment: Market weakening

4. Evaluate News Impact

High Impact News

Regulatory announcements
Major adoption news
Security breaches
Economic data releases
Central bank decisions

Transient vs Structural News

Short-term noise: Price reactions fade quickly
Fundamental shifts: Long-term impact on valuations

5. Social Media Analysis

Red Flags (Potential Top)

Excessive euphoria
"Get rich quick" narratives spreading
Retail FOMO (Fear of Missing Out)
Influencers all bullish

Green Flags (Potential Bottom)

Widespread despair and capitulation
"Project is dead" narratives
Retail giving up
Contrarian voices emerging

6. Correlation with Price Action

Sentiment leads price: Strong predictor
Sentiment lags price: Less useful, reaction not prediction
Sentiment diverges from price: Potential reversal signal

Output Format

When analyzing market sentiment, provide:

{
  "eval_note": <float -1 to 1>,
  "confidence": <float 0-1>,
  "sentiment_summary": "Overall market mood description",
  "key_factors": ["Fear & Greed at 15 (Extreme Fear)", "News sentiment turned positive", "Social media showing capitulation"],
  "description": "Detailed sentiment analysis with reasoning"
}

Sentiment Patterns

Bullish Sentiment Signals

Fear index in extreme fear zone
Negative news priced in (no reaction to bad news)
Social media capitulation (everyone giving up)
Contrarian buying emerging
Positive news starting to surface

Bearish Sentiment Signals

Greed index in extreme greed zone
Good news not moving price higher
Social media euphoria (everyone bullish)
Mainstream media excitement
Negative news having outsized impact

Best Practices

Use sentiment as a contrarian indicator at extremes
Combine with technical and fundamental analysis
Watch for sentiment/price divergences
Consider the time horizon (short-term noise vs long-term trend)
Distinguish between retail and institutional sentiment
Be aware of sentiment manipulation and false narratives
Track sentiment changes over time, not just snapshots
Consider broader market sentiment, not just asset-specific

Warning Signs

Extreme Bull Market Top Indicators

"This time is different" narratives
Parabolic price moves with euphoric sentiment
Mainstream coverage going viral
Everyone you know is talking about it
Extreme leverage and speculation

Extreme Bear Market Bottom Indicators

"It's going to zero" narratives
Capitulation selling with despair
Media declaring market dead
Nobody wants to talk about it anymore
Forced deleveraging complete