On Friday a strong Spike Bounce signal (marked as a vertical dashed âSâ line in the chart below) was triggered, after the S&P traced a clear washout of the January lows andclosed above -1ATR, with new lows shrinking from about 2600 to just over 150.
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. ]
Last weekend I wrote: "a clear washout of the January lows could bring FGIC to panic levels for the first time since the beginning of the decline. Markets have to panic before recovering. Triggering a Spike Bounce could possibly generate a tradable rally."
On Thursday, FGIC sank to the panic level of -9 and then immediately ticked up, along with a strong Spike Bounce signal. At the end of the week, it was still in its extreme fear zone, but that upward tick supporting the SB is a bullish signal that did not occur at the late January bottom.
The S&P500 closed in the value zone, approaching strong resistance. Next week we want the new lows to stay below 500, the S&P500 not to close below -1ATR and FGIC to continue to rise from extreme fear readings.
PS: Several Members requested to see the chart shown below, with all available historical data. It makes very clear the cyclical nature of the two dominant emotions among the masses of traders.
Have a safe trading week,
Gianluca L.
4 Comments
Ralph S.
Thank you so much.
very gracious of you to share your work
Thanks again
Randall K.
Thank you Gianluca for this detailed analysis. I must admit that your analysis of the fear/greed index has not clicked with me before, although I do read most of your posts about it because I know there is good information there. This article today helps me understand much more clearly the correlation of the fear/greed index extreme lows and extreme highs with the lows of highs of the S&P500 moves.
Michael H.
The lightbulb turned on for me as well. Great tool.
Gianluca L.
Thanks to all! I hope it can be useful for your market analysis.
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