Fear and Greed Index Sees a Big Move and the Indicators Are Telling
The Fear and Greed Index has seen a change for the first time since February and a close look hints at what's next for a news-driven market.
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CNN's Fear and Greed Index has pulled back to neutral for the first time since February. Rather than indicating indecision, in this case, neutral indicates that we could be getting closer to a turning point.
I've been watching the following Fear & Greed downtrend, which has been broken, and we've now got a higher high (relative to the March high):
Now, that's not necessarily an all-clear for stocks to rally. Last time Fear & Greed fell into the single digits before April was in May 2022. Following a sharp rally in both F&G and the S&P 500, stocks set a new low. And then rallied and failed, before finally starting a new uptrend that October.
So, the headline number is improving, but history shows there is still the chance to test the lows. That lines up with a lot of what Helene Meisler has been saying, so I think I'm in good company.
But what of the components?
Fear and Greed Stock Market Indicators Suggest Short-Term Gain, Long-Term Pain
Market momentum remains in "extreme greed" simply because it's about one standard deviation below the 125-day average. But there's more. The 125-day average is falling. That's never good.
Looking back over the last 20 years, the only time that there was a V-bottom following a declining 125-day average was during the COVID-19 pandemic. Well, maybe in 2018, too, but that pattern is a little more complex. Generally, bottoms looked more like Ws. They were complex, with some choppiness that became a support level.
With that in mind, I think this is telling us that we should test the lows again, though I wouldn't rule out more upside first.
The two breadth indicators are both moving higher. So, it's not just the Mag 7 leading the market up, which is good, and that supports the idea that there could be more upside in the short-term.
Fear and Greed Options Indicators Improving
The put/call ratio and VIX are both declining. So, let's say that these are improving and reasonably positive for stocks.
Fear and Greed Bond Indicators Hit Greedy
The bond indicators are back to greedy! Regarding safe haven demand, that's mostly because stocks have ripped higher, and not because of any movement in bonds.
Junk bond demand is a similar story. Risky junk bonds have outperformed investment grade recently, sending this relationship back toward the lows.
The Market Can Head Lower on a Dime
A deep look into the index and its indicators shows that the market is currently firing on all cylinders. But it's a news-driven market and could change on a dime. I still believe we will test the lows, though it's so hard to know when.
