FGIC has declined into its extreme fear zone for the first time since exiting it 15 months ago at the end of the pandemic sell-off.

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 upper boundary of the extreme fear zone ( –8 ) has repeatedly worked as support (marked by green arrows).  Last Friday FGIC broke below that level, suggesting that this is not a simple pullback and that the correction has still some way to go, even if a rally occurs in the next few days.

When will this correction end?  In the last 6 years for which I have data, the average time FGIC spent in its extreme fear zone was 64 daily bars (ranging from 31 to 70 days), or nearly three calendar months.  The average duration of tops was nearly 140 bars, another confirmation that bottoms are much sharper and faster than tops. 

How will this correction end?  The signals and indicators we follow on SpikeTrade (divergences, ATR, Industry Groups, NH-NL) are preparing the ground for the next Spike Bounce signal, which can be medium or strong after a long series of weak signals.  In the past, corrections and bear markets have been resolved after one or more Spike Bounce signals.  A Spike Bounce signal accompanied by a rising FGIC has often augured in the next bull market.

Have a safe trading week,

Gianluca L.