The CNN Fear and Greed index was just updated as the new stock trading session is underway, and the indicator, which spans from 0 to 100, has dropped to 14 in today’s session. Traders are fearful, as they project that the slowdown in China will influence earnings negatively, and as the Coronavirus spread in Italy could also shut down Europe. However, the Atlanta Fed GDPNow model, estimates that the US first quarter GDP growth will be 2.7%.
The Fear and Greed index reading of 14 is lower than the level we saw in the second half of 2019 when the index started its climb to a new multi-year high and suggests that investors are now in “Extreme Fear.”
The indicator is a contrarian in nature, and when it is at “Extreme Fear” levels, it tends to hint about a low pending. It is, however, advisable to combine it with other technical analysis tools.
As an example, two days ago, the indicator was already in “Fear levels,” yet the Dow Jones traded straight through the 200-day-moving average and the critical December 3 and October 23 lows.
The Dow Jones is now back at the same levels seen first in January 2018, and from its all-time high, the index was down by 11%. The next support level is the October 10 low, followed by the August 15 low at 25998. The short-term trend will remain downwards as long as the index trades below the February 26 low.More content