Fear And Greed
The S&P 500 has recently ticked a couple of sell signals on RSI and MACD (highlighted below).
Despite that, fear or volatility is benign – here is the VIX (volatility) index that is used as a barometer of fear and greed – it is not predictive but does highlight when the market is “comfortable” (now) and when the market is “fearful” – note the volatility ripping up in the corrections in February and October last year.
And here is the VIX overlaid on the S&P 500 over 20 years including the GFC:
The VIX is not a chart you can apply ‘signals’ to like a stock price – it is a statement of current fact, and it doesn’t trend – but what you can see here is that when the VIX is high (fear is high) – things happen.
When high volatility is combined with a market bottoming or topping out you can believe in the change of trend – when a market tops or bottoms and the VIX pops at the same time, it reinforces the need to do something about it.
The good news at the moment is that the market is complacent/comfortable. The VIX is benign and whilst it is you can stay on the golf course. When it pops up, you need to get back to your screens.
So relax, for now. The market is comfortable, market risk is ‘normal’, and we can go about our business worrying about 'stocks' rather than 'the market'.
The RSI and MACD sell signals on the S&P 500 that are highlighted above are short term, they are not the harbinger of doom, they are simply reflecting/detecting a rather normal market dip in the short term.
If this small peak develops into something more meaningful – you will see it in the VIX, and you will read about it here.
Meanwhile here is the ASX 200 and the ASX 200 VIX index (code AXVI) – this shows the same picture as the US – volatility is about as benign as it gets – the Australian market is also comfortable. We’ll be watching for the day that changes, but for now, as in the US, there isn't much to worry about.
But: If you are supposed to buy when others are fearful and sell when others are greedy, we should surely be ‘ready to sell’ rather than looking to buy at the moment. We are clearly set up for a correction. But as always – lets wait for the top, not predict it.
CNN FEAR AND GREED INDEX
You may have seen that we occasionally feature the CNN Fear and Greed based on the US market based on seven 'Fear and Greed Indicators' one of which is the CBOE VIX Volatility index described above. The index has just moved from Greed to Neutral heading towards fear. It is quite a sensible index – you can look at how they calculate it on THIS PAGE – a page worth bookmarking. They say "Stock Price Strength" is at Extreme Greed.