On Friday a strong Spike Bounce signal (marked as a vertical dashed “S†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.