For the past three weeks, the S&P kept reaching its all-time highs, sometimes for several days in a row. In the past, whenever the S&P reached all-time highs, FGIC was always in its positive zone, and frequently in greed readings – but not now.
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. ]
After two short pullbacks between mid-May and mid-June, S&P reached new highs (marked with a green arrow) but FGIC remained in negative territory. In the past, it never happened that new S&P highs were reached with FGIC in negative territory and with apparent difficulty to rise. FGIC has been negative for 7 weeks now, drawing a massive bearish divergence.
Have a safe trading week,
Gianluca L.
5 Comments
Frederick L.
Setting aside bearish divergence on NHNL, I have to wonder if the fearful FGIC is creating the wall of worry needed to propel the S&P to break out and trend higher. We may just see NHNL turn around and the FGIC gradually trend toward greed as the summer wears on.
Gianluca L.
Patrizio, at this link you can see a longer historical chart of FGIC and you will realize that it is not a contrarian indicator: rising markets are accompanied by euphoria and vice versa.
https://www.spiketrade.com/members/blog/?id=1211
Personally I see the current situation as a party where a few are having fun and the rest are leaving.
Frederick, Friday’s S&P close is just shy of +3ATR on the weekly and above +3ATR on the daily. Can it go further? Of course it can, but the odds are for a pullback and the divergences on NH-NL and FGIC indicate that this top is not underlain by either the majority of equities or favorable market sentiment.
Frederick L.
Gianlucca- I would agree with you the risk/reward has shifted toward the bears. Indeed, I exited two very rewarding options trades on Friday (Apple being one of them) as the consequences of a pullback would have been huge.
Do you ever look at the NAAIM exposure index? There appears to be negative divergence happening there. https://www.naaim.org/programs/naaim-exposure-index/
Gianluca L.
Hello Frederick, I know it but don’t use it. Looking at too many indicators gets confusing and NH-NL as a market internal indicator is the one I prefer.