Alexander Elder comments on the Fear&Greed Composite Index

Please follow these links: original and update explanations how FGIC works. (click to enlarge)

The bars on the chart are colored red when FGIC is -8 or lower (Extreme Fear) and green when FGIC is +8 or higher (Extreme Greed). 

In the five years of data that I have for FGIC it has reached the extreme greed readings eight times. The average length of stay at that level was 70 calendar days – a rather long time. The shortest stay was 14 days. The average of the remaining seven occurrences was 80 days. As of today, FGIC is in its twelfth day in the extreme greed zone.

Comment by Dr. Alexander Elder

This week I have the honor of hosting a comment from my mentor and friend Dr. Alexander Elder. Alex is kind enough to discuss these updates with me, commenting, asking questions, suggesting improvements. I am really very grateful to him, I have learned a lot from him and I continue to learn. Alex writes:

First of all, many thanks to my friend Gianluca for updating and sharing his research with our group on a weekly basis. Multiple comments show how much our Members appreciate his work.

Looking at his chart today, I’d like to add a comment to his statement “As of today, FGIC is in its twelfth day in the extreme greed zone.”

Notice that the extreme Greed zones numbered 1 through 6 all were followed by drops into the Fear zone (marked by green circles). The quick Greed top between #2 and #3 is not numbered – probably because the drop from #2 did not reach the Fear zone.

Notice that the decline from the top originally marked #7 had not yet reached the Fear zone either. Because of that, a question arises: whether what we’re seeing at the right edge is a fresh top #8 being formed OR the continuation of top #7, similar to the broad tops which included intermediate middling declines in areas #1 and #3.

IF this is a fresh top (starting to count from “Y”), then the odds are Mr Bull should be good well into January. IF on the other hand, this is a continuation of top #7 that began on August 4 (starting to count from “X”), then Mr Bull is living on borrowed time, and we could see a downward reversal very soon indeed.

We all look for perfect signals of perfect indicators… I am yet to find one… and here too the Fear/Greed chart can be interpreted in two alternative ways at the right edge.

One thing for certain – must use stops, not to be too late exiting a potential downward reversal.

Alex

(This article has been posted on SpikeTrade. Follow FGIC updates on www.spiketrade.com)