Please follow these links: original and update explanations how FGIC works. (click to enlarge)
The CNN Fear&Greed Index has reached positive to extreme greed readings in all 4 different timeframes.
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). Continuous and dashed lines represent past “strong” and “medium” Spike Bounce signals, respectively.
This week the Composite FGI, a derivative of the CNN FGI, has reached +8, the lower boundary of its “extreme greed” range. It got there even though the slower quarterly timeframe is still below its extreme greed zone (see inset). This is unusual, since typically FGIC reaches extreme readings when all timeframes are in gear. Emotions in the market moved at a fast pace last week, with short-term overtaking longer-term – an indication that market sentiment was rapidly heating up.
A word of caution: in healthy bull markets, the FGIC tends to remain in its positive area or in the lower range of extreme readings (between 8 and 10) for weeks, thus it doesn’t mean that a correction is imminent. Greed can last for weeks and is not a good reason to sell and sell short: we need to patiently wait for other signals confirming that market’s structure is deteriorating and the next correction is on its way. Notice that a multi-month periods of green on the chart started last November: as of mid January FGIC diverged massively igniting the pandemic driven selloff.
(This article has been posted on SpikeTrade. Follow FGIC updates on www.spiketrade.com)