What is Market Mood Index (MMI) and How Traders Use It?

The Market Mood Index (MMI) simplifies market sentiment, reflecting the overall market mood and the psychological state of investors. It shows how confident they feel about buying or selling stocks and how this collective behavior may affect market prices. This market mood indicator helps determine the right timing to enter the market — whether it’s worth catching the “last train” of a rally or waiting for a possible trend reversal.

In this guide, you’ll learn what is Market Mood Index, what it reveals about market psychology, and how to use its signals to make informed investment decisions.

The article covers the following subjects:

Major Takeaways

• The Market Mood Index (MMI) is an analytical sentiment indicator that measures investors’ emotional tone and expectations. It operates on a numerical scale from 0 to 100, where 0 represents extreme fear and 100 represents extreme greed.
• The MMI score is calculated using several market indicators, including the volatility index (VIX Index), market breadth, safe-haven demand, institutional investor activity (FII activity), and price strength based on 52-week highs.
• Essentially, the market mood index serves as a broad indicator of the market’s emotional state. Different versions may incorporate other tools, such as sentiment analysis of news and social media using neural networks.
• The MMI Index is most commonly found on Indian trading platforms, where it is derived from local stock market data. For the United States, a similar sentiment indicator — the Fear and Greed Index — is used, based on a different set of market data and indicators from the U.S. stock market.
• Here’s how the Market Mood Index scale is interpreted: 0–30: Extreme fear, often accompanied by panic selling; 31–50: Fear and caution dominate; 51–70: Greed, with rising optimism; 71–100: Extreme greed zone, marked by overbought market conditions and irrational buying.
• In addition to MMI, other technical analysis indicators can be used for trading strategies, such as the Average True Range (ATR), to assess volatility and market risks more precisely.

Market Mood Index Definition and Scale

The Market Mood Index (MMI) is a sentiment indicator that tracks investor sentiment in the stock market. It reflects prevailing emotions at a given time — whether most market participants are inclined to buy or sell, and whether the overall market mood suggests an upward or downward trend.

Here’s what to know about the Market Mood Index:

• The market index mirrors investor psychology, as it is derived from various market indicators. It is primarily designed for the Indian stock market.
• The MMI score helps evaluate investor optimism and pessimism, offering valuable insights into the market’s emotional pulse. It helps identify the most favorable moments to buy or sell stocks, based on prevailing market conditions.
• The mood index ranges from 0 to 100. Readings above 50 indicate bullish sentiment, while readings below 50 suggest bearish sentiment.

The Market Mood Index reveals and helps interpret the market mood. It is somewhat of a lagging market mood — since markets may react instantly to major technical and fundamental analysis factors, the indicator reflects those shifts only afterward. However, it still helps answer key questions: Has the market reached the peak of optimism or the bottom of fear? Will the market trend continue, or is a reversal likely?

The MMI index also requires attention to its dynamics. For example, if the MMI score rises from 50 to 65 one week, and then only to 70 the next, it signals overheating and a possible downward movement, indicating that the market momentum may soon weaken.

Understanding the 0-100 MMI Scale

The Market Mood Index (MMI) looks like a circular speedometer-style gauge ranging from 1 to 100. A reading of 50 indicates a neutral market mood, with the financial market balanced and poised to move in either direction. In this state, market participants are uncertain about future price movements and tend to focus on fundamental analysis to determine potential trends.

The MMI scale is divided into two main zones: 0–50 (fear) and 50–100 (greed). Each of these zones has two sub-sections, distinguishing moderate and extreme emotions. As soon as the numerical value moves away from the midpoint (50), the “needle” accelerates toward the extremes, reflecting growing volatility and stronger market emotions.

Four Emotional Zones Explained

The Market Mood Index (MMI) consists of four zones:

• 0–30 – Extreme fear. This zone signals panic selling and deep pessimism. Investors are highly negative and rush to liquidate their holdings, driving prices even lower. Bearish sentiment dominates.
• 31–49 – Caution. Investor sentiment remains pessimistic, with caution prevailing in the market mood. When the mood index approaches 31, it often indicates rising anticipated volatility.
• 51–70 – Greed. Confidence returns to the markets. Supported by mild optimism, prices begin to climb gradually.
• 71–100 – Extreme greed. Strong fundamental factors have driven a surge in prices. Investors aggressively buy stocks, pushing prices even higher. The market becomes overbought, with more risk of a market correction or a speculative bubble that could burst quickly. Bullish sentiment dominates in this extreme greed zone.

A value around 50 marks the median — a turning point where traders analyze what market indicators or data might influence the next price action. At this level, trading volumes are typically low, and the market often moves sideways.

How Market Mood Index Is Calculated

The specific formula for calculating the Market Mood Index (MMI) depends on various factors, including the data sources and methodologies used by each sentiment index provider. Each analytical platform may include additional components based on regional market features.

The most common components of the Market Mood Index include:

• Market volatility. Measured using an implied volatility index, such as the VIX Index, based on option prices for the S&P 500.
• Price momentum. Calculated using exponential moving averages (EMA). A rapid increase in short-period ЕМАs signals growing optimism, while long-term EMAs positioned above short-term ones suggest pessimism.
• Market breadth. The MMI index tracks how many stocks are advancing versus declining in price. If most stocks are gaining value, it indicates positive sentiment among investors.
• Institutional investor activity (FII & DII activity). Measures net capital flows and net open interest from foreign (FII) and domestic (DII) institutional investors. An inflow of capital from large players reflects optimism in the broader market.
• Safe-haven demand (gold and bonds). A possible formula compares the gold demand or gold returns to a key national stock market index over a specific period (1–6 months).
• Price strength. Compares the number of stocks trading near their 52-week highs with those near 52-week lows.

In some models, natural language processing (NLP) algorithms are used for sentiment analysis of news and social media to simplify and enrich the understanding of market sentiment.

Momentum and Price Strength Factors

The momentum and price strength factors in the Market Mood Index (MMI) are represented by moving averages. A moving average reflects the average price over a specific period, typically 52 weeks.

When the EMA rises or falls sharply, it indicates the presence of a driver influencing the asset’s price. A positive value of an EMA trend signals bullish sentiment, supported by technical analysis, while a negative one indicates bearish sentiment.

MMI Trading Zones and Investment Signals

Each zone shows how psychologically ready market participants are to buy or sell stocks. This behavior also indirectly affects other markets. When the stock market declines and current sentiment turns negative, safe-haven assets such as gold and the Swiss franc tend to appreciate.

Trading signals and investment decisions are determined not only by the current mood value but also by MMI direction. If the index falls from the 70–100 zone, it suggests a bubble is deflating. If it drops from the 30–50 zone, it indicates growing fear and market stagnation. The faster the MMI score changes, the higher the volatility.

Extreme Fear (0-30) and Extreme Greed (70-100)

The extreme fear zone (0–30) is often one of potential buying opportunities. This range indicates an oversold market where most investors have already sold off their positions. The market sentiment tool has little room to fall further. However, the market moves in waves — after every decline comes recovery. That’s why long-term investors usually start buying stocks at the lowest prices in this zone.

Important nuances:

• The market can stay in a pessimistic phase for an extended period, especially when strong fundamental factors drive a global recession. It’s important to look for reversal patterns, accumulation zones, and positive news, and to be prepared for the market to remain at the bottom for several months.
• Not all stocks recover evenly from oversold conditions. A rising Market Mood Index does not mean that every stock will immediately appreciate.

The extreme greed zone (70–100) usually signals a price bubble. The market is overbought, and institutional investors (Smart Money) often close positions near the top, triggering a reversal.

Fear (30-50) and Greed (50-70) Zones

These are intermediate areas where multiple scenarios may play out:

• If the market mood index is between 30 and 50 and macroeconomic data shows negative trends, the values may fall further into the extreme fear zone. If macro data is positive and the index bounces upward from 30, buying investment opportunities may arise, with signs of positive momentum in the market.
• If the market mood rapidly moves from 50 to 70, it indicates euphoria, and the MMI index may soon enter the extreme greed zone. Buying is usually a good idea for short term traders when the index is between 50 and 60.

Regardless of the zone, if a stock drops more than 7% from its purchase price, it’s advisable to sell. That’s a simple rule of risk management for trading decisions and investment strategy.

Practical Trading Strategies with MMI

1. Trend-following investment strategy.

If the Market Mood Index shows positive dynamics and crosses above 50, consider buying. The 55–60 range is usually an optimal entry point. For short positions, if the index declines gradually below 50, the 45–40 range may signal selling opportunities. For long-term investing, it’s better not to sell shares of top companies.

Follow risk management rules: a decline in the index does not always mean a falling market. Stick to the 7% rule — sell a stock if it drops more than 7% from the purchase price — and use additional indicators for confirmation and market timing.

2. Contrarian investing strategy using MMI:

• Buy when the momentum indicator is below 30. Stocks are undervalued, panic selling has occurred, and recovery is likely.
• Sell when the momentum indicator is above 70, as the market becomes euphoric.
• At this stage, stocks are overvalued, and prudent investors close long positions, often triggering a correction.

Weak points: it’s possible to sell too early and miss profit, and not all stocks bought at the bottom will recover. Finding undervalued stocks with growth potential requires separate sentiment analysis.

3. Risk management.

If the MMI value rises above 70 or drops below 30, reduce position size or hedge trades to limit your risk exposure. Look for fundamental reasons behind MMI movements — what news or events affected market sentiment. Watch out for FUD (fear, uncertainty, and doubt) — the spread of false or misleading information that can influence investment decisions. During FUD periods, MMI changes are often short-lived.

The Market Mood Index has shown more than 90% accuracy according to its developers, but these results apply mainly to the Indian stock market, and broader reliability data is not available.

Market Mood Index vs Fear & Greed Index

Both market sentiment indexes are tools for analyzing the market’s emotional state. Each operates on a 0–100 scale with similar zone interpretations, but their calculations differ.

1. MMI has become a kind of local brand or common name for India’s sentiment index. Although its calculation algorithm can be applied to any stock market, MMI is most often found on Indian platforms such as Tickertape and Stocker.

Calculation details:

• Market volatility is measured using the India VIX index.
• Market breadth is calculated for the Nifty 50 and Sensex indices.
• Price momentum is defined as the ratio of the difference between the 30-day and 90-day EMA of the Nifty 50 index to its 90-day moving average.

2. The Fear and Greed Index has been developed by CNN Business for the U.S. market.

It includes seven key components:

• Price momentum: compares the current value of the S&P 500 to its 125-day moving average. If the index trades above average, it signals greed; below average — fear.
• Price strength: measures the number of NYSE stocks hitting 52-week highs versus those hitting 52-week lows. More highs mean greed, more lows mean fear.
• Market breadth: compares the trading volume of advancing versus declining stocks on the NYSE. Higher advancing volume signals greed.
• Put and call options: a high put-to-call ratio indicates fear.
• Market volatility: measured by the CBOE Volatility Index (VIX Index); higher values suggest uncertainty and fear.
• Safe-haven demand: compares returns on S&P 500 stocks to U.S. Treasury bonds. When investors move from stocks to bonds, it shows fear.
• Junk bond demand: analyzes the yield spread between high-yield, low-rated bonds and investment-grade government bonds. A narrower spread signals greed.

Each of these seven sentiment indicators is rated on a 0–100 scale, and their average value is calculated from multiple data points to determine the final reading.

Conclusion

Market Mood Index is a useful but narrowly focused indicator. Possible alternatives:

• Fear and Greed Index – a similar sentiment indicator for the U.S. stock market.
• AAII Sentiment Survey – a weekly poll conducted by the American Association of Individual Investors. Participants answer one question: Will the stock market rise, fall, or stay within a narrow range?

• ISEE Index – a sentiment indicator for the options market, published by Nasdaq ISE.

• Bitcoin Fear and Greed Index – a cryptocurrency market sentiment indicator calculated by the analytics platform alternative.me.

None of these market sentiment indicators guarantees successful trades. They only help assess the psychological attitude of the majority and estimate the potential direction of the market mood.

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