Fear, Greed, and Positioning: A Practical Guide to Sentiment

**Matt Weller** (0:04)
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**John Kicklighter** (0:37)
Welcome to the Trading Global Macro Podcast from StoneX, where we unpack the complex forces driving global financial markets. I'm John Kicklighter, Global Head of Content at StoneX.

**Matt Weller** (0:46)
And I'm Matt Weller, Global Head of Market Research for StoneX's Self-Directed Brands. Each week in this podcast, we explore the macroeconomic trends and geopolitical events shaping forex, equities, commodities, interest rates and more. We're back after a bit of a hiatus here. So, appreciate everyone joining us. John, what is our topic today?

**John Kicklighter** (1:06)
I think our topic today is sentiment, which is always a factor. So, I won't say it's particularly one now, but it is. But when you talk about sentiment, it has wide ranging references. So, actually, in one of our first episodes, we talked about more of the extremes of sentiment and how that can impact the market and how markets draw from that sentiment to develop pricing, develop perspectives, seize runs, reversals, fads that rise and fall. And it has just a broader consideration outside of another theme that we talked about before, what you consider to be all the tangible or known data. Around that data, around that information that is objective and all out of the market is sentiment. And sentiment turns into speculation and expectations and forecasting. So it arguably has some of the greater impact on the markets overall than almost any other of the factors, although that's very debatable. We've had that debate somewhat in the past. But what would you say, what would you add in terms of the importance or what reflects or represents sentiment for markets?

**Matt Weller** (2:22)
Yeah, I view it for traders and investors as kind of like the third leg of the stool, in addition to fundamental and technical analysis that many will be more familiar with. You can think of an example where the fundamentals for an asset are supportive and maybe the technicals are breaking out after consolidation. But if you don't consider the sentiment or the positioning, if everyone's already bought that asset, then it's going to be difficult for it to extend its gains further. So I think it can provide a unique source of insight that you might not get from some of the more traditional ways of looking at markets. And for that reason, I think it can be very valuable, especially as you alluded to earlier, when it's at extremes, that's when you get the strongest signals from sentiment. A lot of times, as with everything, sentiment's somewhere between the 10th and the 90th percentile. In those instances, it maybe plays a slight supporting role in other forms of analysis. But when we get to those extremes, that's where I think it's really important to know that. Hopefully, it's something that can be incorporated to help become a more successful trader and investor.
I think you ignore it at your own peril, especially at certain times when it's at those extremes.

**John Kicklighter** (3:31)
Absolutely. Sentiment, there's the rational, there's the emotional. I think it's a human consideration until the AI takes over all of the trading, which I don't think it ever really will, which we can have a separate conversation on that. But the emotional aspects of those assumptions, those outlooks, those misprioritizations or differing prioritizations will always lead to significant amounts of volatility. So I think it needs to be considered. And I think there is a reversion to mean with anything, volatility, price to some extent has a reversion to mean. But sentiment certainly has a reversion to mean. It definitely snaps back. So with that being said, I think we should go into some of the different measures that we have for sentiment. And there's general categorizations of these measures, although we were kind of debating on what the best names would be. But setting those category names aside, I think they're very practical in terms of the insights that they give. And there's benefits and there's detriments to each. All of this is tools. There is no perfect measure. There is no one-step solution. There is no silver bullet, so to speak, not even AI. We will talk about the AI in this as well. But let's start with, I think, one of the more popular ones. I think, hopefully, everyone's aware of it, but the CNN Fear and Greed Index, kind of a hallmark alongside something like the VIX Volatility Index, which is more of a fear indicator. But this gets both categories or both ends.