CNN's Fear and Greed Index measures investor emotions of fear and greed on a daily, weekly, monthly, and yearly basis. Too much fear can drive stock prices too low, while greed can raise prices too high. This index can serve as a tool for making sound investments. It consists of seven technical indicators used to broadly estimate broader market sentiment. It provides a rough gauge of how euphoric or fearful the market is. If used properly, the Fear and Greed Index can be used as a guide for making profitable investments.
7 Different Factors to Score Investor Sentiment
1. Stock Price Breadth: How far has share volume advanced or declined on the New York Stock Exchange? Here, the FGI relies on data from the McClellan Volume Summation Index.
2. Market Momentum: How far is the S&P 500 above or below its 125-day average?
3. Junk Bond Demand: Are investors pursuing higher risk strategies?
4. Safe Haven Demand: Are investors rotating into stocks from the relative safety of bonds?
5. Stock Price Strength: What is the tally of stocks hitting 52-week highs as compared to those at one-year lows?
6. Market Volatility: Here CNN employs the Chicago Board Options Exchange’s Volatility Index (VIX), concentrating on a 50-day moving average.
7. Put and Call Options: To what extent do put options lag behind call options—greed—or surpass them—fear?