The Modern Approach to the Fear and Greed Index

The Modern Fear & Greed Index [8 Sentiment Indicators]

The LST Fear & Greed Index: A new take on the outdated CNN fear and greed index. 8 interactive charts that enable you to truly understand market outlook, sentiment and make buy and sell decisions

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 the Fear and Greed Index?

The fear and greed index has grown to become synonymous with trying to understand the state of mind of investors in the stock market.  When people are feeling greed it means they are either buying or will buy stocks, this pushes prices up, essentially increasing demand.  When people are feeling fear, this means they are either selling or about to sell stocks, meaning there is an increase in the supply of stocks on the market which in turn decreases stock prices.

Fear = Selling = More Supply of Stocks for Sale = Stock Price Decreases

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

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 there assets, like an 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 20 indicates that more Put contacts are being purchased and that the investors are fearful and covering their trades with downside insurance.
Tip: Use the mouse scroll wheel to change time-frames to see the VIX fear gauge in 2008

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

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 are feeling 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 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

S&P 500 Weekly Chart Above Moving Average 20

Here we take the S&P500 weekly chart and plot a moving average 20 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

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 on a weekly basis. On the chart the central horizontal line represents the average bullish sentiment over the period, 0.35 means 35% of investors possed 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

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

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