Fear & Greed Index Showing Signs of Extreme Greed

Interesting new indicator here from CNN Money that attempts to track the level of fear and greed in the market.  They calculate the index using 7 indicators:

Investors are driven by two emotions: fear and greed. Too much fear can sink stocks well below where they should be. When investors get greedy, they can bid up stock prices way too far.

So what emotion is driving the market now? CNNMoney’s Fear & Greed index makes it clear.

The current reading of 86 is consistent with a market in which participants are extremely greedy.   I haven’t run much in terms of backtesting this indicator, but it looks like one that’s worth keeping an eye on.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. If active managers are all-in.by implication less active longer term holders will have been all-in prior to that process reaching these dizzy heights. Begs the question does it not.Where are the next buyers going to come from? Please don’t tell me bondholders and cash holders.

  2. This chart is a great contrarian warning of a correction coming. So far, the market is unwilling to oblige and it refuses to sell off by moe than one percent. To me the key is the very strong euro vs. the USD. When the Euro turns down (it may take a while), then equities will turn down sharply, IMO.

  3. Bill Gross answered your question via Tweet saying stock buys were coming out of cash, not so much from bonds. He is skeptical about a reat rotation from bonds to stocks, does not see it happening any time soon.

  4. Actually the vix approaching “historic lows” is a misnmer .It doesn’t HAVE to give you anything as a guide to the future. If conditions and data merit it the market could stay sanguine for far longer than the benfits of buying cheap protection would afford. Recent couple of years though as a guide would take the contrarian view of that simply because there have been enough ‘systemic’ issues in play to make buying those lows profitable against the follwoing corrections.
    The point I am making is a low vix means nothing. It is the economic and political enviroment in which the low occurs that makes it note worthy.

  5. Junk metric as far as I am concern…

    The market has been up most since 2010 and we have had only a single pull back of 10% or more.

    This chart shows four major dips and no correlation with the DOW…

  6. I’ve been following this indicator for about a year now and it’s proven to be pretty useful.

  7. Nick – your article is seriously flawed. Ironic that you chose to post it on this site – the very one that has been debunking a lot of what you believe in for years now. So I’m guessing you’re a first time visitor.

    From your article “If the economy can prosper forever on the crutches of money printing, than why aren’t countries such as Argentina, Hungary, and Zimbabwe amongst the most prosperous in the world?”

    This topic has been dissected to death, and debunked, here. Search for “hyperinflation” within pragcap and grab a glass of wine.

  8. Hello!

    Does anyone know if it is possible to export the historical values? It would be great to compare it with the S&P performance…

    Regards to all!

  9. Thank you so much Joseph! ButI can not open the image.. could you please check it?

  10. My point is that new money (which comes from banks extending credit) creates the demand that drives stocks upward. Money supply growth is a leading indicator for stocks.

  11. It worked; Thank You!
    Not so clear on what to conclude though… But i will keep an eye on it for sure!

  12. your chart appears to show that extreme fear marks a low, but extreme highs are often followed by more gains.

  13. Could be TAG money.

    As for margin, how do you think the stock market move up 8 trillion dollars(from 2009) when everyone was rotating into bonds? No one actually put in 8 trillion cash, just used leverage bets.