Sentiment Indicators for the CMT Exam: Put/Call Ratio, VIX, AAII Survey & More

Sentiment Analysis on the CMT Exam

Sentiment indicators measure investor psychology and are used as contrarian signals. They connect directly to behavioral finance concepts and are tested on CMT Level 2 and Level 3.

For the full guide, see the CMT Exam Guide 2026.

Key Sentiment Indicators

Put/Call Ratio

Compares put option volume to call option volume:

• High ratio (>1.0): Excessive bearishness — contrarian bullish
• Low ratio (<0.5): Excessive bullishness — contrarian bearish
• Related to options and technical analysis
• CBOE equity put/call ratio is most commonly tested

VIX (Volatility Index)

The "fear gauge" measures implied volatility of S&P 500 options:

• VIX > 30: High fear — contrarian buy signal
• VIX < 15: Complacency — potential risk
• VIX spike clustering warns of volatility regime shifts
• Mean-reverting nature makes extremes actionable (see mean reversion)

AAII Sentiment Survey

Weekly survey of individual investors (bullish, bearish, neutral):

• Bears > 50%: Contrarian bullish
• Bulls > 60%: Contrarian bearish
• The bull/bear spread is the key metric

Investors Intelligence (II) Survey

Survey of newsletter writers:

• Professional sentiment — wider coverage
• Extreme bullish readings (>60%) signal caution
• Divergence from market breadth amplifies the signal

Less Common Sentiment Measures

Contrarian Analysis Framework

The contrarian principle: extreme sentiment reliably marks turning points.

1. Identify extremes — use 2+ standard deviations from mean (statistical analysis)
2. Confirm with breadth — sentiment + breadth divergence = strong signal
3. Wait for price confirmation — sentiment alone is not a timing tool
4. Monitor duration — prolonged extremes eventually reset

Sentiment & Market Cycles

Sentiment follows a predictable pattern through market cycles:

• Bottom: Maximum pessimism (high put/call, high VIX, high bears)
• Early rally: Skepticism / disbelief
• Mid-trend: Gradual optimism
• Late trend: Euphoria, complacency (low VIX)
• Top: Maximum optimism — Dow Theory distribution phase

This mirrors Wyckoff's accumulation/distribution framework.

CMT Exam Application

• Level 2: Interpret put/call ratio, VIX, and survey data
• Level 3: Integrate sentiment into portfolio management essays — critical for top scores

Practice sentiment-focused questions in our test bank. Full guide: CMT Exam 2026.