The CNN Fear and Greed index has taken a step back following the last few day’s softer stock market. The move lower in stock has been induced by the Coronavirus that send the Shanghai Composite reeling lower.
Last week, the CNN Fear and Greed index reached the “Extreme Greed” level of 89. Today it is at 68, indicating that the market is still greedy but not at extreme levels. The biggest contribution to the lower rating is the put to call option volume that remains in the favor of calls, which means that investors are bullish, however, the relationship between the put and call volumes is at its weakest levels for a while, indicating extreme fear.
Also, contributing to the lower rating is the difference between stock and bond market returns. Until recently, stock market returns where outperforming bonds, this advantage has now declined, and stocks are ahead by just 1.34 percentage points in the last 20 days.
Looking at the overall figure, the Fear and Greed index is lower, and approaching the levels seen in January, thus there still a long way to go before stocks are considered neutral or oversold.
Short-term traders would be watching for the Fear and Greed index to reach the January lows and for the Dow Jones or S&P 500 to also reach its January low as a sign for a short-term low forming.