Fear & Greed Index Remains At FEAR Level For 6th Week - Here's Why - munKNEE.com
Friday , 30 October 2020

Fear & Greed Index Remains At FEAR Level For 6th Week – Here’s Why

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The current Fear & Greed index is 39 and remains at the “Fear” level for the 6th straight week.

The article below, as provided by eResearch Corporation, is a summary of CNN Money’s Fear & Greed index (see original source here) .

CNN Money creates a Fear & Greed index by looking at seven market indicators: 1) Junk Bond Demand, 2) Put and Call Options, 3) Market Momentum, 4) Market Volatility, 5) Safe Haven Demand, 6) Stock Price Breadth, and 7) Stock Price Strength. (See below for more details on each indicator.)

TABLE 1: Ranking of Each Indicator for the Week Ended May 15

INDICATOR RATING
Junk Bond Demand Extreme Fear
Put and Call Options Greed
Market Momentum Extreme Fear
Market Volatility Fear
Safe Haven Demand Neutral
Stock Price Breadth Fear
Stock Price Strength Fear
RESULT: 39
Fear

DIAGRAM 1: Fear & Greed Index Meter

2020-05-17 Fear & Greed - Meter
Source: CNN Money

Source: CNN Money

The rationale for the index is that investors are driven by two main emotions: Fear and Greed.

  • When too much Fear rules the market – stock prices might drop below their intrinsic value.
  • When too much Greed rules the market – stock prices might be bid up, above their intrinsic value.

Each market indicator is rated on a scale from 0 to 100, the higher the reading, the greedier investors are being; 50 is neutral. All of the Indicators are summed, equally weighted, for a final index reading.

Key:

Status Reading
Extreme Fear 0-25
Fear 26-44
Neutral 45-55
Greed 56-74
Extreme Greed 75-100

DIAGRAM 2: Fear & Greed Index Three-year Graph

2020-05-17 Fear & Greed 3-Year Index
Source: CNN Money

CNN Money Fear & Greed index is calculated from seven market indicators:

  1. Junk Bond Demand: The spread between yields on investment grade bonds and junk bonds. The higher the spread, the more risk adverse investors are.
  2. Put and Call Options: The put/call ratio, which compares the trading volume of bullish call options relative to the trading volume of bearish put options.
  3. Market Momentum: The S&P 500 (SPX) versus its 125-day moving average
  4. Market Volatility: The CBOE Volatility Index (VIX) measures volatility over the next 30 days.
  5. Safe Haven Demand: The difference in 20-day stock and Treasury returns.
  6. Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining using the McClellan Volume Summation Index.
  7. Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange.

NOTE: The above link is “live” and the readings will change during each trading day. The readings are “static” from about 5:00 pm until the next market opening day.

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