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Fear and Greed Index Remains Too High Despite S&P 500 Slide

FTSE 100
FTSE 100

[vc_column width=”2/3″]The S&P 500 is down sharply today as the Coronavirus sends shockwaves across the globe. Data from CDC, NHC, and Dingxiangyuan, show that there were 2886 confirmed cases of the new virus worldwide at the time of writing. Eighty-one people have so far died from the disease while 59 have recovered. The biggest concern right now is the rapid spread of the Coronavirus, and social media reports show that Chinese hospitals are overwhelmed and not able to help or confirm if individuals have the new virus or not. Since Monday last week, the number of confirmed cases has increased by 10.38 times at the time of writing. If the growth rate can’t be halted, the number of confirmed cases will soon reach tens of thousands.


In the US, there are five confirmed cases, and it was when the second case was confirmed on Friday last week that the S&P 500 turn lower. The Coronavirus was not the only reason for traders booking profits on the last few month’s gains. On Friday, the US PMIs, the leading economic indicators, showed that the manufacturing sector failed to meet the market expectations, instead of gaining to 52.5, the indicator printed 51.7. As seen in the chart below, the PMI has not risen as fast, steadily, or high as projected by stock markets. The service sector, on the other hand, managed to beat expectations.[vc_column width=”1/3″]

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From its December 2018 low, the S&P 500 was up by 44.7%, which is a rather spectacular rise in a short period. The sharp gains, softer than expected PMIs, and the Coronavirus appears to have triggered a profit-taking wave. The next interesting support level is the January 8 low of 3182. If the price manages to remain above it, then the index might be able to bounce back to the all-time high of 3340. However, on a failure of the January 8 low to hold, the price might try to reach the December 3 low of 3067.5. A decline to this level is also bit more of a 50% correction of the gain from the October 2019 low to the all-time high of 3340.

Fear and Greed Index Suggests S&P 500 Could Add to Losses

If the Fear and Greed index also reached oversold levels, then it would be a better indicator of when the S&P 500 could bounce, than technical analysis alone. As seen in the chart below, the index is at 48, indicating that the index is no longer overbought. Yet the index would need to reach close to the 20 levels as seen last year to indicate a significant low is pending. For now, the index suggests that the S&P 500 could trade lower.