Sentiment is contrarian at extremes, confirming in the middle. Here's how to use it properly.

Sentiment Metrics:

Fear & Greed Index (CNN):

• 0-25: Extreme Fear (contrarian bullish)
• 25-50: Fear (cautiously bullish)
• 50-75: Greed (neutral to cautious)
• 75-100: Extreme Greed (contrarian bearish)

VIX:

• 30: Fear (potential opportunity)

• 20-30: Elevated concern
• 12-20: Normal
• <12: Complacency (vulnerable)

AAII Survey:

• Bulls > 50%: Caution
• Bears > 50%: Opportunity
• Historical extremes mark turning points

Put/Call Ratio:

• 1.0: Hedging demand high (fear)

• <0.6: Hedging demand low (complacency)

The Integration Rule:

Sentiment confirms OTHER baskets at extremes:

• Macro bullish + Sentiment fearful = BUY (best setup)
• Macro bullish + Sentiment euphoric = CAUTION
• Macro bearish + Sentiment fearful = WAIT (could get worse)
• Macro bearish + Sentiment euphoric = SELL (worst setup)

The Timing Use:

Use sentiment for TIMING within a regime:

• Regime is bullish → Buy fear spikes
• Regime is bearish → Sell euphoria spikes