The market feels schizophrenic right now.
One camp is calling for new all-time highs. The other is bracing for a violent correction.
Both sides sound confident. Both cite compelling data points.
But here's the problem...
Anecdotes aren't analysis. And individual data points don't tell you the full story.
Is the market actually exuberant? Or are we just experiencing healthy skepticism that could fuel the next leg higher?
Most investors rely on gut feel or cherry-picked indicators. Maybe you watch the VIX. Maybe you track put/call ratios. Maybe you read sentiment surveys.
But you're still left guessing.
I'm going to show you how to use AI to systematically gauge market sentiment across 8+ quantitative and qualitative indicators in real-time.
(You can customize my framework to any matrix of data you prioritize to gauge market sentiment)
The idea is this:
- AI fetches live sentiment data across multiple sources:
- AAII Sentiment Survey → weekly poll of individual investors (bull vs bear spread signals retail positioning)
- NAAIM Exposure Index → how aggressively active investment managers are positioned (0-100 scale)
- VIX term structure → compares short-term vs long-term volatility expectations (inversion = fear)
- Put/Call ratio → option activity signaling hedging demand or speculation
- COT positioning → tracks hedge fund and institutional futures positioning on S&P 500
- FINRA Margin Debt → measures how much retail is borrowing to buy stocks (peaks often precede corrections)
- Consumer Confidence → Conference Board and University of Michigan surveys tracking economic optimism
- AI analyzes recent financial headlines from Bloomberg, WSJ, CNBC, and Reuters for tone
- AI scores each indicator on a scale from extreme fear to extreme exuberance
- AI computes a composite sentiment score and flags contrarian setups
The Prompt
I am using ChatGPT thinking mode for this!
Download the 4 page prompt here:
The Result
Full output here: Link
Our AI analysis reveals the market isn't exuberant or fearful. It's split.
The composite sentiment score came in at +0.19 (firmly neutral territory).
The bullish indicators:
- NAAIM Exposure at 80.66 → active managers are leaning risk-on
- VIX term structure in steep contango (VIX9D at 13.79 vs VIX3M at 18.76) → short-term volatility expectations are calm
- Margin debt hit a record $1.06T → retail is levered up and still buying
- Headlines skew positive → 8 positive vs 3 negative across Bloomberg, WSJ, and Reuters
The bearish indicators:
- COT positioning shows specs net short -172,549 contracts → hedge funds are hedging or positioned bearish
- Put/call ratio at 0.90 → elevated hedging demand vs the 0.4-0.8 normal range
- University of Michigan sentiment at 55.1 → consumers remain pessimistic despite market strength
- AAII bull-bear spread only +3.8 → retail investors are cautiously optimistic, not euphoric
The contrarian setup: Elevated leverage (margin debt) + bearish positioning (COT net short, high put/call) creates the ingredients for a squeeze if macro data stays clean. But that same leverage amplifies drawdowns if sentiment flips.
How am I positioning: Clear to me this isn't 2021 euphoria. And it's not 2022 capitulation. I'm cautiously long where I'm allocated to lower volatility assets (eg, value stocks / gold / Bitcoin) and small short positions in areas I see froth in. Generally avoiding high beta names like altcoins and high momentum stocks.
If you want to run this analysis yourself on other time periods or add custom indicators, try the prompt with your own watchlist.