What is the Fear & Greed indicator?
The index Fear & Greed o Fear and Greed Index (FGI) is an indicator prepared by the American news network CNN. Its objective is to measure the degree of “greed” or “fear” at a time in the Market, giving positive or negative readings.
The Euphoria Y Panic are the two main emotional states of the Market. Both are the main responsible for causing volatility in world stock markets. The Fear & Greed Index indicator is prepared by CNNMoneythe economics division of the prestigious American news network CNN.
The Fear & Greed Index (FGI) can range from 0 to 100. The closer to 100, the more “greedy” investors behave, as interpreted by the creators of the index. Instead, the closer to 0, the more fear there is in the market. A score of 10 or less is considered “extreme fear.”
How is the Fear & Greed indicator calculated?
The FGI is constructed from the mean of seven indicators, which in turn have a score between 0 and 100 on the same fear-greed scale. These indicators are:
1.- Momentum of shares: Value of the S&P 500 index relative to its 125-day moving average.
two.- Stock price strength. Number of securities at 52-week highs and lows on the New York Stock Exchange (NYSE).
4.- Put and call options: Compare the trading volume of call options (bullish) with that of put options (bearish).
5.- Junk bonds. A calculation of the spread between the yields of High Yield Bonds, against those classified as “junk bonds”.
6.- market volatility: It is calculated taking the VIX as a reference.
7.- Risk-free asset demand. Stock Yield Spread vs. US Treasury Bonds.