S&P has been climbing since the beginning of May, interrupted only by a few quick pullbacks. While financial markets have become largely unrelated to the real economy in recent times, they are now also independent of market sentiment.
Market breadth indicators have been giving very different messages from price analysis for quite some time. FGIC has been declining since the beginning of May, even though the S&P has rallied over 8% since then.
The two pullbacks of the S&P in July and August pushed FGIC below the –8 level, the upper border of extreme fear readings. It was peculiar that those minor pullbacks from the historic highs of the S&P created levels of concern equal to the worst corrections of the past six years.
Typically, a FGIC lunge from extreme fear readings is accompanied by a wave of Spike Bounce signals.
As the S&P reached new all-time highs at the end of the week, FGIC finally shook off its extreme fear readings.
While the S&P’s has been surging to new highs, it saw only one "fearless" day in the last five weeks. The rest of the time FGIC has remained in its extreme fear zone, which it entered 40 days ago. The average stay there during the past five years was 63 days.
FGIC in its extreme fear zone, with the markets at all-time highs is something that never happened in the past: a signal of how the current markets are to be handled with great care.
FGIC left its positive territory 88 days ago, entered negative territory 52 days ago and touched the extreme fear readings 25 days ago. As mentioned in a previous post, the average time FGIC spent in its extreme fear zone was 64 daily bars, so we are about 1/3 of the way there.
The extreme greed and extreme fear levels begin above +8 and below -8. At the end of the pandemic selloff the -8 level acted as support for FGIC for several weeks while S&P was gradually gaining strength. It is now acting as resistance.
After the latest weak Spike Bounce signal on Tuesday, FGIC remained flat for two days and gained 1 tick on Friday, closing the week at -9, still in extreme fear zone.