FEAR & GREED INDEX 38
The Fear & Greed Index (found on cnn.com) is one of the easiest indicators to use to determine current market emotion. The simple to read gauge, highlighted in our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology - available on Amazon), is measured in a range from 0-100, and currently reads 38, as of the close on Friday, June 14, 2024.
This figure sits around the middle of the “FEAR” category, down about 7 points from last Friday’s close at 45. The divergence continues regarding this indicator vs the S&P 500, as the index gained 84 points, from 5,347 to 5,431. The past few weeks has now seen a slow, steady decline in this gauge from 65 to the current 38, despite this week’s gain in the S&P. The gauge has now surpassed the level of 40 (also in the FEAR category) from about 2 months ago, after the index lost approximately 230 points from April 12-19 to a level just under 5,000.
The “fear” sentiment would suggest a more “risk-off” approach with investors over the last few weeks. The indicator has consistently moved lower, although not sharply, over that time frame, and again experienced an “outlier” day (similar to the prior two weeks), on Wednesday, which saw a 46-point gain in the S&P. On Wednesday, Fed chair Jerome Powell announced a “hold” on interest rates, and an expectation of only one rate cut through the end of the year. This sent bond yields a bit lower, again buoying stocks. Without that day, the index would have gained just under 40 points for the week. Two weeks ago, as noted in our 6-2-24 Fear & Greed blog, the S&P was ready to close at its 2-week low, until a sudden upward reversal in the last half-hour on Friday, May 31st. These are not normal conditions as the indicator tends to rise toward Greed as the S&P 500 increases in price, and usually falls toward Fear when the index declines. As the internal factors in the market continue to deteriorate, it is being held up by only a few powerhouse companies like Apple, Nvidia, Microsoft, Google, and a few others. Even sectors like Energy, Precious Metals, Real Estate, and Cryptocurrency have recently experienced a short-term decline.
This is a good reminder that the gauge measures investor sentiment, based on 7 internal factors, and not necessarily the immediate reaction in the S&P. Of the 7 internal factors regarding this index, Market Momentum (which measures the S&P 500 vs its 125-day moving average) has again reached the EXTREME GREED category, now joined by the Put to Call Ratio (the Options gauge that compares the number of Puts vs the number of Calls – currently reading 0.71). This again suggests a distorted market, as Puts (bearish option strategy) would normally would not decline in a “Fear” sentiment environment.
Safe-Haven Demand (which measures stocks vs bonds) has now slipped into EXTREME FEAR (favoring bonds), after forming a double-top pattern (refer to Chapter 2 of our publication if you are not familiar with chart patterns), which is normally bearish for stocks.
Both Stock Price Strength (number of new 52-week highs vs new 52-week lows), and Stock Price Breadth (number of shares rising vs falling on the NY Stock Exchange), remain in the EXTREME FEAR level, further indicating the upward trend is not as healthy as it appears. Although this does not indicate a major crash, it does suggest continued caution. The AI technology sector was strong once again, led by NVIDIA, which continues to make all-time highs. The 10-year bond yields declined significantly by .27, by the end of the week (which is usually positive for stocks overall), again boosted by the Fed’s remarks. This is another perfect example for the swing trader or longer-term investor to ignore immediate market reaction/emotion.
The Market Volatility category (measured by the VIX) remains “Neutral,” with no clear direction. The VIX has risen from 12.2 to 12.6, a modest 3.2% increase in volatility, as the market was relatively calm. This gauge continues to be very low historically, which suggests caution, as dips and possible corrections often follow (even if only short-term).
Astrologically, as mentioned over the last few weeks, it was no surprise that the markets turned upward following the Jupiter-Uranus conjunction (April 20), in the sign of Taurus (symbolizing money), covered in our Trader Transits blog dated 4-3-24, which now occurred almost 2 months ago. Themes and energies will remain, however, as both are slower moving planets (especially Uranus). The Gemini “season” push and pull characteristics (dual personality of the symbolic “Twins”) continues to affect a market looking for direction. As mentioned earlier, volatility has calmed for the time being. As we approach Cancer “season” (when the Sun is positioned in the sign of Cancer from June 20 – July 21, focus often turns to emotion, intuition, and protection (see our Sign Language – Cancer blog dated 6-8-24), and the month of July has seen the 2nd best monthly returns over the past few decades. The sign of Cancer (ruled by the Moon) signifies the home and family, which financially can relate to real estate, jobs, and personal finance. Remember that this does not necessarily translate to investment opportunities, rather these sectors will be in focus, and may be tradable in either direction.
Controlling your spending, and share size, continues to be a smart strategy during this season, especially for short/intermediate term trading. The full moon (in Capricorn) on June 21 is now approaching, which is discussed in our Planet Power – Moon Shine blog edition – dated 5-4-24. Remember that the full Moon often signifies short-term bottoms in some equities. As always, keep your emotions in check when contemplating investments of all types.
As conditions have now moved into the “Fear” category, it is probably best for investors to continue the “wait and see” approach, although Extreme Fear levels would indicate oversold conditions and potential “buying the dip” opportunities.
