FGIC and the Spike Signal

There is no change this week, as FGIC remains at the lower edge of the extreme greed readings (+8) for the eleventh consecutive day. There is no new message from FGIC. Today I’d like to share with you my latest research project: a study of the relationship between FGIC and Spike signals.

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. ] 

 The Spike signal is a rare and powerful signal that occurs when the weekly NH-NL crosses above –4,000.  We had it three times in the past five years for which I have FGIC history.  In my previous post I showed the series of events around the time of the latest Spike signal, at the end of the pandemic driven selloff.  Today we’ll review FGIC and Spike signals in 2019 (the chart above) and 2016 (the chart below)

2019 Spike signal:

1. The weekly NH-NL drops below –4,000, FGIC is at –12: it couldn’t go any lower, panic spreads in the markets.
2. Weekly NH-NL finds a bottom and starts to rise.  Price also rises but FGIC remains flat at –12. This level of the FGIC will have to increase before a new stable uptrend can start.
3. As a “medium” Spike Bounce signal (a lesser signal than Spike) is triggered (marked by a black dashed line), price keeps rising but FGIC is still flat at –12.
4. Weekly NH-NL crosses above –4,000, triggering the Spike signal.  FGIC is still at –12.  S&P rises, but panic remains at its highest level.
5. A pullback in the S&P is driven by the early profit-taking and continuing panic exiting.  FGIC remains flat at –12.
6. FGIC finally ticks up, breaking out above the –12 level at which it was when the weekly NH-NL had found its bottom.  Its uptrend, joining price and NH-NL, signals the start of a stable uptrend.

2016 Spike signal:

1. The weekly NH-NL drops below –4,000, FGIC enters its extreme fear readings at –8.
2. Weekly NH-NL finds a bottom and starts to rise.  Price also rises but FGIC remains flat at the –8 level – it will have to be broken to the upside before a new stable uptrend can begin.
3. As a “strong” Spike Bounce signal is triggered (black continuous line), price keeps rising but FGIC sinks to –10.  Price is rising but panic increases.
4. Weekly NH-NL weekly crosses above –4,000, giving the Spike signal.  FGIC sinks to –11.  Price is up but panic still very strong.
5. A pullback in the S&P driven by the early profit-taking and continuing panic exiting.  FGIC remains flat at –11.
6. FGIC finally ticks up, breaking above the level ( –8) at which it was when the weekly NH-NL found its bottom.  Its uptrend, joining price and NH-NL, signals the start of a stable uptrend.

CONCLUSIONS (based admittedly on a short history of only three occurrences):

• Spike and Spike Bounce signals are powerful triggers to open new long positions.
• Long-term trend-following positions or investments may wait for FGIC joining the overall uptrend.
• Conservative traders may wait for the breakout of the FGIC value after the Spike signal.