Market veterans often look beyond price movements to gauge investor psychology, relying on sentiment indicators and the CBOE Volatility Index (VIX) as contrarian signals. Sentiment measures such as the Fear & Greed Index, put-call ratios, and investor surveys reveal whether traders are excessively optimistic or pessimistic, while the VIX—often called Wall Street’s “fear gauge”—tracks expected market volatility implied by options prices.

When sentiment reaches extreme fear and the VIX surges to unusually high levels, analysts often see signs that panic selling may be nearing exhaustion and a market rebound could be forming. Conversely, when optimism becomes widespread and the VIX sinks to very low levels, it can signal complacency and heightened risk of a pullback.