A Spike Bounce signal warns traders that a rally is imminent – but not necessarily that the market correction is over.
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). [ Please follow these links: original and update explanations how FGIC works. ]
From the market top in early September (where FGIC found resistance in its neutral zone between -2/+2) the price decline triggered three weak Spike Bounce signals (marked by vertical dashed lines). FGIC continued sideways, signaling that market sentiment was not in good shape and the bottom had yet to be found. The final strong Spike Bounce signal (vertical “S” line) was confirmed by FGIC’s rise, suggesting that this was a likely market bottom.
As I repeatedly mentioned, past corrections often ended with the combination of a Spike Bounce signal and a rise in FGIC from its extreme fear readings.
FGIC closed the week in the middle of its neutral zone (=0). We need FGIC to turn positive (> +2) as a further confirmation of the stability of the new bull market.
