FGIC closed the week just below its neutral zone (at a -3 level). As we’ve seen many times, the neutral zone, between +2 and -2, works as a congestion zone.
Last Monday S&P traced a false breakout, completing an ATR divergence. At that time FGIC exited its extreme greed readings.
The last time FGIC rallied above the lower margin (+8) of extreme greed was exactly one year ago.
After the bull run in October the markets are taking a break. FGIC, which accompanied that rise, remained at the lower level of extreme greed readings (+8) throughout last week.
The end of the latest correction confirmed our earlier data – that a Spike Bounce signal followed by a rise of FGIC out of its extreme fear zone is a powerful combination that marks the end of a correction and the beginning of a new bull market.
The recently ended correction was the sixth during the period for which we have FGIC historical data. It ended after a cluster of powerful bullish signals that we follow in SpikeTrade: a strong Spike Bounce signal followed by a 1-HL setup and a V1 trigger.
A Spike Bounce signal warns traders that a rally is imminent – but not necessarily that the market correction is over.
FGIC began to decline in May, building a massive divergence from S&P. It sank to extreme fear readings in mid-July and, with the exception of one week, has remained there.
All market corrections sooner or later start triggering one or more Spike Bounce signals, until the last one in the series augurs in the new bull market. FGIC has a close relationship with Strong and Medium Spike Bounce signals.
The market failed to trigger a strong Spike Bounce signal on Friday, as the monthly NL remained below its –500 level. FGIC spent the third consecutive week in extreme fear readings, 20 calendar days.