FEAR & GREED INDEX 45
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 45, as of the close on Friday, June 7, 2024.
This figure sits in the beginning of the “NEUTRAL” category, down only slightly, about 3 points from last Friday’s close at 48. This was a bit of a diversion in the index this week, as the gauge decreased slightly, while the S&P 500 gained 70 points, from 5,277 to 5,347. The past few weeks has now seen a slow, steady decline in this gauge from 65 to the current 45, despite this week’s gain in the S&P. The gauge has now almost reached the level of 40 (in the FEAR category) from about one and a half months ago, after the index lost approximately 230 points from April 12-19.
The “neutral” sentiment continues the slightly more “risk-off” approach with investors over the last few weeks. This indicator has consistently moved lower, although not sharply, over that time frame, and again experienced an “outlier” day, on Wednesday, which saw a 62-point gain in the S&P. Without that day, the index would have been basically flat, with only an 8-point advance. Last week, 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.
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, only Market Momentum (which measures the S&P 500 vs its 125-day moving average) remains in the GREED category. Safe-Haven Demand (which measures stocks vs bonds) has now slipped into 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), have both continued falling and have now reached the EXTREME FEAR level, 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. The 10-year bond yields again rose slightly by the end of the week (which is usually negative for stocks overall), though they had dipped mid-week.
The remaining 3 internals, the Put to Call Ratio (Options gauge), Market Volatility category (measured by the VIX), and Junk Bond Demand remain in the “Neutral” stage, with no clear direction. The VIX has moved down from 12.9 to 12.2, a 9.4% increase in fear sentiment, following the 20% increase in the last 2 weeks, which supports the actual amount of underlying selling that has occurred.
Astrologically, as mentioned over the last 2 weeks, it was no surprise that the markets turned upward following the Jupiter-Uranus conjunction, in the sign of Taurus (symbolizing money), covered in our Trader Transits blog dated 4-3-24, which now occurred about a month and a half ago. Both the Sun and Jupiter have now settled into the sign of Gemini, and conditions are changing, though still volatile. As mentioned in last week’s edition, Gemini “season” (May 20 – June 20) often comes with turbulence (see our Sign Language – Gemini blog dated 5-8-24), and the month of June normally averages only a very slight gain by the end. Last week saw a huge upward reversal day on Friday that was not surprising, as the start of the Jupiter ingress into Gemini suggests the continuation of AI sector advances, like Nvidia and other leaders. This week, Wednesday was the outlier, with a large gain in the S&P 500, mainly caused by early job creation and unemployment reports, giving the public illusion that the Fed would soon be ready to cut rates. The Friday morning non-farm payroll job report then negated that belief, which subdued that excitement. The 10-year yield, which initially fell after the initial reports Tuesday and Wednesday morning (good for stocks), reversed back up to basically where the week began on Monday (better for bonds). This is a perfect example for the swing trader or longer-term investor to ignore immediate market reaction/emotion.
Controlling your spending, and share size, continues to be a smart strategy during this season, especially for short/intermediate term trading. The new moon in Gemini, which occurred on Thursday, (June 6), which is discussed in our Planet Power – Moon Shine blog edition – dated 5-4-24. Remember that the new Moon often signifies short-term tops in some equities.
As conditions remain “Neutral” it is probably best for investors to utilize the “wait and see” approach, and hesitate to commit any new funds to stocks, until market direction becomes clearer, and the gauge moves much closer to an extreme. Swing-Trading for the beginner/intermediate also remains difficult with the unclear short-term trend direction.
