'Fear & Greed' Languishes at Extreme Level, but it Isn't Time to Buy the Dip
Despite the index persisting within "Extreme Fear," a closer look should encourage investors to sell the bounce.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
A version of this article originally appeared in TheStreet Pro's Daily Diary.
We’re still in "Extreme Fear," and that 22 value is still overstated. We've been here since February 25. I'm guessing, but I think the correct value would be more like 17.
Stock indicators
Market momentum is weak. The 125-day average hasn’t yet rolled over, and since we’ll only be dropped off older data that is currently well below the average, it could be a little more time before the 125-day actually rolls over. As Helene Meisler says, that’s just the math.
However, this recent move took us to two standard deviations below the 125 and that’s just not something that happens in bull markets. We remain more than one standard deviation below the 125-day.
Stock price strength and breadth are both showing a little life. Investors are nibbling.
Options Indicators
Lots of improvement here. Put/call has rolled over and VIX is back to 20. Traders are not scared anymore. They’re also not speculating on a move higher.
Bond Indicators
Safe haven demand is improving. Stocks have rebounded a little relative to bonds. So, that’s good!
But junk bond demand is still not improving. Again, ignore that CNN says this is "Greed." The reality is that junk has underperformed investment grade since the beginning of the year. Investors prefer safer assets. However, it’s not so much that they’re selling junk, but more that they’re buying Investment grade. So, perhaps this is part of a rotation out of stocks and into bonds.
Summary: We're oversold and there could certainly be a bounce. In fact, we've already had one. Perhaps we get more upside but with "Liberation Day" around the corner and the additional tariff talk it will bring, I'd be a bounce seller rather than a dip buyer. Above 5,850, we can start assuming I'm wrong.
