Mike Shell Profile picture
Chief @ShellCapital investment manager of ASYMMETRY® Global Tactical for asymmetric risk/reward. Trend following momentum, global macro, volatility, sentiment.

Aug 26, 2020, 9 tweets

Fear & Greed Index tracks seven indicators of investor sentiment. It's gradually dialing back up to Greed, but not yet Extreme Greed.

But when we take a look inside, and understand how it works, I see the main holdout is the . At around 22, the VIX still indicates a moderate level of FEAR, but we have to consider #VIX is fading from its highest level, ever, so its absolute level may not be as indicative.

On the other hand, the level of the Put/Call Ratio is among the lowest levels of put buying seen during the last two years, indicating EXTREME GREED on the part of investors.

Junk Bond Demand @ EXTREME GREED. Investors in junk bonds are accepting 2.05% in additional yield over safer investment grade bonds. This spread is much lower than what has been typical during the last two years and indicates that investors are pursuing higher risk strategies.

The 3rd EXTREME GREED indicator is the S&P 500 is 15.28% above its 125-day average. This is further above the average than has been typical during the last two years and rapid increases like this often indicate extreme greed, according to the Fear & Greed Indicator.

Aside from neutral , some other moderate hold outs of the 7 indicators include breadth. The Fear & Greed Indicator uses the McClellan Volume Summation Index, which measures advancing and declining volume on the NYSE. It has fallen from EXTREME GREED just over a week ago.

Stock Price Strength is another moderate GREED level. It says the number of stocks hitting 52-week highs exceeds the number hitting lows and is at the upper end of its range, indicating greed.

Safe Haven Demand is at a bullish investor sentiment level. Stocks have outperformed bonds by 6.87% during the last 20 trading days, close to the strongest performance for stocks/bonds in the past 2 years - investors are rotating into stocks from the relative safety of bonds.

THE BOTTOM LINE IS: The seven indications of investor sentiment are dialing up to a very optimistic level, signaling investors are bullish on stocks. Though some of it isn't yet extreme, when we put it in context, anything can happen from here, but its now @ a high risk zone.

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