The weekly CNN Fear&Greed Index, one of the four components of the FGIC, best represents the cyclical nature of fear and greed in financial markets. In the prolonged bull market of the past few years, the alternation between the two emotional extremes has been fairly regular, with tops and bottoms quite equidistant from each other.

In recent months the tops have grown progressively weaker – a sign of rowing nervousness (see the red circle on this chart).

Last Monday FGIC has sank into its extreme fear readings, after spending three months in its negative zone; in general, when FGIC reaches a new level, it tends to stay there.  The S&P is strongly oversold and it is therefore possible a sort of mechanical reaction of the market from these levels, but it is difficult to think of something more concrete than a simple, short-lived, upward reaction.

Have a safe trading week,

Gianluca L.