LST Fear and Greed Index: 9 Live Charts & Sentiment Indicators

Liberated Stock Trader (LST) Fear & Greed Index, 9 Live, Interactive & Historical Charts Help You Understand Stock Market Sentiment & Volatility

Welcome to the modern take on the CNN Fear and Greed Index.  Using modern sentiment indicators and important core technical analysis, you can easily understand and evaluate the state of fear and greed in the current US stock markets.

What is a Fear and Greed Index?

A fear and greed index tries to estimate investor sentiment in the stock market. When people feel greed, it means they are either buying or will buy stocks; this pushes prices up by increasing demand. When people feel fear, it means they are either selling or about to sell stocks, which decreases stock prices.

Fear = Sell = More Supply of Stocks for Sale = Stock Price Decreases.

Greed = Buy = More Demand for Stocks = Stock Price Increases

Fear and Greed Index: Mastering Stock Market Sentiment Indicators

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The Fear and Greed Index

The fear and greed index comprises 9 charts, including the CBOE Volatility Index (VIX), the NYSE Advance-Decline Ratio (ADR), S&P 500 Weekly Chart, Federal Reserve Bank Kansas Financial Stress Index, and the AAII Sentiment Indicator. Ultimately, fear and greed are expressed in the 26 technical indicators of the S&P 500, providing an accurate picture of the market action.

The CNN fear and greed index often gives an unclear picture of traders’ and investors’ fear and greed.

As a technical analyst, the best way to measure fear and greed is to bring 16 of the most popular technical supply and demand price and volume indicators together to establish a buy and sell signal.

  • Strong Sell = Extreme Fear
  • Sell = Fear
  • Neutral = Balance
  • Buy = Greed
  • Strong Buy = Extreme Greed

Find out more about the technical fear and greed indicators.

Fear & Greed Index: S&P 500 Buy Sell Rating

 

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VIX Fear Gauge

The Chicago Board of Options Exchange (CBOE) Volatility Index (VIX) measures fear by comparing the price volatility of Put Options versus Call Options.  Put Options are purchased when a market participant believes the stock price will go down; this protects their assets, like insurance.  The Call Option is purchased when a trader believes that the stock price is going up. 

Ultimately the index measures the volatility of those prices. A low VIX price indicates the market is good, and stock prices will continue on their normal upward trajectory.

How does the VIX Fear Gauge Work?

A high VIX price above 30 indicates that more Put contacts are being purchased and that the investors are fearful and covering their trades with downside insurance.

A VIX Volatility Index Above 30 Indicates Fear.

CBOE Volatility Index – >30 = Fear< 20 = Greed

Powered by Chicago Board Options Exchange, CBOE Volatility Index: VIX [VIXCLS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/VIXCLS

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NYSE Advance-Decline Ratio

The New York Stock Exchange Advance Decline Ratio is the number of stocks with a price increase for the day divided by the number of stocks with a price decline for the day.  Price is ultimately the decider of fear and greed, and rising stock prices mean people feel bullish.

How does the NYSE A/D Ratio work?

A ratio of 1 means that there was one advancing stock for every 1 declining stock; above 2 means that the market is in greed mode with 2 stocks rising to every 1 falling.

Tip: Use the mouse scroll wheel to change interact with the chart time-frames

NYSE A/D Ratio < 1 Fear> 2 Greed

 


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S&P 500 Weekly Chart Above Moving Average 9

Here we take the S&P500 weekly chart and plot a 9-period moving average over it.  The price line is the thicker blue line; the moving average is the thinner line.  When the price is above the moving average indicator, this is bullish, meaning the main price trend is up; therefore, investors are greedy.

How does the S&P500 Chart Work?

When the price line is below the moving average, this indicates fear.  As we are using a weekly line chart, we are estimating the long-term trend of the market; this helps you make better long-term investing decisions.

Tip: Use the mouse scroll wheel to change interact with the chart time-frames

S&P 500 Weekly – Fear = Price < Moving AverageGreed = Price > Moving Average

 


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Federal Reserve Bank Kansas City Financial Stress Index

Financial stress is defined as interruptions to the normal functioning of the financial markets.  This important leading indicator is published monthly and gives valuable insight into investor stress in the financial markets. Measures include TED spread, Swap spread, Stock Bond Correlation, Bank Stock Volatility, and more

How does the Financial Stress Index Work?

When the value line is above zero or positive, this indicates that financial stress is above the historical average (fear).  A value below zero indicates the normal functioning of the markets (greed). A value above 0.8 typically indicates severe stress and fear in the markets; this occurred in 1999 and 2007. In September 2008, the index spiked to a value of 6.

Tip: Use the mouse scroll wheel to change interact with the chart time-frames scroll back to 1999 and 2007 to see the stress line rise.

Kansas City Financial Stress Index – Extreme Fear = Price > 1 – Greed = Price < 1

 


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AAII Sentiment Indicator

The American Association of Independent Investors (AAII) Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership every week. On the chart, the central horizontal line represents the average bullish sentiment over the period, 0.35 means 35% of investors polled were optimistic that the stock market would rise over the next six months.  At the extremes, the AAII sentiment indicator registered 0.2 or 20% of investors were bullish at the worst point in the financial crisis in December 2007.  The highest level of bullish sentiment was on December 20, 1999, when 75% of investors were bullish; this was during the Dotcom bubble hype a few months before the crash.

How does AAII Sentiment work?

This indicator is best used as a contrary indicator; when sentiment is extremely high, it is an indication to sell, and when extremely low and an indication to buy stocks.  As Warren Buffet says, “Be fearful when others are greedy and greedy when others are fearful.”

Historical Average 0.36 – Fear < 0.25Greed > 0.50

 



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TradingView Technical Analysis Buy Sell Gauge

In addition to the fear and greed indicators we have above, TradingView has very cleverly implemented a Buy-Sell Gauge based on technical analysis.  Technical Analysis is based on the principle of evaluating the market direction using stock price and volume to determine underlying supply and demand.  This is a much better indicator than, for example, the AAII Sentiment indicator because, as we know, most investors are wrong at key points in major market turns.  The buy-sell indicators are based on 26 different well established technical indicators:

Moving Averages

  • 6 Simple Moving Averages with timeframes 10, 20, 30, 50, 100, 200
  • 6 Exponential Moving Averages 10, 20, 30, 50, 100, 200
  • Ichimoku Cloud (9, 26, 52, 26)
  • Volume Weighted Moving Average (20)
  • Hull Moving Average (9)

How do the Buy Sell Technical Indicators Work?

When any of the above technical indicators is clearly a buy or a sell, it counts as 1 point.  When it is unclear is counts as neutral.  Now take a look at the Buy Sell Indicators below to see the average rating and the buy-sell and neutral ratings.


Oscillator Indicators

  • Relative Strength Index (14)
  • Stochastics %K (14, 3, 3)
  • Commodity Channel Index CCI (20)
  • Average Directional Index (14)
  • Awesome Oscillator
  • Momentum (10)
  • Moving Average Convergence Divergence MACD (12, 27)
  • Stochastic RSI Fast (3, 3, 14, 14)
  • Williams Percent Range (14)
  • Bull Bear Power
  • Ultimate Oscillator (7, 14, 28)


S&P 500 Index Technical Sentiment

 


NASDAQ 100 Index Technical Sentiment

 

Dow Jones 30 Index Sentiment

 

Dow Jones 20 Transport Index Sentiment

 

Extreme Greed & Fear Creates Boom & Busts

We have all heard the phrase “Boom and Bust,” but what is it? What causes it? More importantly, what effect can it have on our investments?

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What is a Boom and Bust?

“Boom and Bust” describes the sequence where an economy, commodity, or market sector goes from surging forward, making lots of profit, and growing at breakneck rates and is generally along the way improving the wealth and standard of living of all participants in the market.  A boom is usually accompanied by a significant amount of greed or irrationality about the underlying fundamentals of the Boom.

“Bust” refers to the contraction of the previous boom, usually fueled by a significant economic or fundamental change in the criteria that fueled the boom in the first place.  This tends to result in various side effects ranging from a reduction in profits, earnings, growth, increased unemployment, restriction of credit, and a great change of psychology of the market participants from optimism and greed to pessimism and fear.

A 100 Year History Of Fear & Greed, Boom & Bust in the Stock Market. Chart: Dow Jones Industrial Average (Ticker:DJIA) 1918 to 2018
A 100 Year History Of Fear & Greed, Boom & Bust in the Stock Market. Chart: Dow Jones Industrial Average (Ticker:DJIA) 1918 to 2018

Why do “Booms and Busts” occur?

Take, for example, the famous Dotcom boom of 2000.  Greed surged into the marketplace on the misplaced belief that new Internet-based technology would fundamentally shift the market dynamics and business models of the future.  Technology became fashionable, and “Bricks and Mortar” businesses were perceived as outdated and almost worthless.  This paradigm shift meant that money poured into technology stocks at an unrepentant rate and that money poured out of “Bricks and Mortar” stocks at an equal rate.

Signs of A Bust

A telltale sign of problems to come was really noticeable when stock analysts would suggest Price Earnings valuations on technology stocks of 200, 300, or more were reasonable even though the companies in question had never made a profit.  The Price Earnings Ratio is the ratio of the Stock Price to its actual earnings.  If a P/E Ratio is at 30, then it would take the company 30 years to earn back the share price.  The higher the P/E ratio, the higher the expectation that the stock will perform well in the future.  You can also see the Price Earnings (PE Ratio) as a valuation of the worth of the stock; if the P/E is 200, you are essentially paying 200 times the earnings capacity of the company.

The Year 2000 Dotcom Bust

In the year 2000, the PE Ratio of the S&P500 reached nearly 45.  This was an all-time high and essentially indicated that the expectation of the market participants was completely unrealistic.  By the time the inevitable correction was completed, the P/E Ratio for the S&P500 had halved to just over 20.  Much of the greed and hype was fueled by professional analysts and so-called “market gurus.”  They became greedy and euphoric: a heady mixture.   When everyone slowly realized that the huge profit expectations would not be met by the technology industry, the entire sector collapsed, bringing with it other industries, indices, and markets.  The technology bubble had burst.

[Related Article: The Stock Market Today – Rational Jargon Free Stock Market Analysis]
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30 COMMENTS

  1. Thank you very much for this beautiful artice. This is really great & helpful. I enjoy reading it. I appreciate your thoughts & ideas. Well done.

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