Fear is receding

Key points:

• The Fear & Greed Model recovered from a round of fear while the long-term trend on the S&P 500 stayed intact.
• Similar recoveries were mostly followed by gains, but they did not beat an ordinary trading day.
• For this indicator, the direction at low readings matters more than the level itself.

Fear appears and fades in a continuous rotation

Investors turned noticeably more cautious recently while the S&P 500 continued to hover near record territory.

The Fear & Greed Model fell to 17 at its low. The model is based on the one CNN publishes on its public website, and we suggest visiting their site to learn more about it. This is our calculation of the model from the inputs discussed there, and it does not reflect the values CNN publishes, but rather our interpretation of the model.

On September 18 the model moved back above 30. Events like this have occurred many times since 1998 and across very different markets. Someone could object that the market rises anyway, which is exactly why the more interesting question is what extra information these signals provide.