Fear & Greed Regime

Overview

This pillar analyzes aggregate market emotion by combining several key indicators into a single Fear & Greed score. It helps traders identify overbought or oversold conditions, providing a powerful contrarian signal to anticipate market turning points.

What It Does

The pillar synthesizes multiple sentiment data points, including options market activity, junk bond demand, and investor surveys, into a normalized 0-100 index. This index is then used to classify the current market environment into one of five regimes: Extreme Fear, Fear, Neutral, Greed, or Extreme Greed. This classification provides a clear, at-a-glance view of market psychology.

Why It Matters

Markets are often driven by emotion rather than fundamentals in the short term. Extreme fear can create buying opportunities when others are panicking, while extreme greed can signal it's time to be cautious. This pillar provides a data-driven way to position against irrational herd behavior.

How It Works

First, we collect daily data from seven distinct market indicators, such as the VIX and put/call ratios. Each indicator is then normalized against its own historical average to determine how far it has strayed from the norm. Finally, these normalized scores are equally weighted and averaged to produce a single composite score that defines the current Fear & Greed regime.

Methodology

The pillar's core calculation is a composite index equally weighting seven normalized indicators: Stock Price Momentum (S&P 500 vs. 125-day MA), Stock Price Strength (52-week highs vs. lows), Stock Price Breadth (advancing vs. declining volume), Put and Call Options (put/call ratio), Junk Bond Demand (spread between investment grade and junk bonds), Market Volatility (VIX), and Safe Haven Demand (stock vs. treasury returns). Each indicator is normalized on a 0-100 scale, and the final regime is the average of the seven.

Edge & Advantage

It offers a quantifiable contrarian signal, allowing you to systematically identify and act on market extremes before the general consensus shifts.

Key Indicators

• CNN Fear & Greed Index

  high

  The primary composite score aggregating seven key market sentiment factors.

• AAII Sentiment Survey

  medium

  Measures the percentage of individual investors who are bullish, bearish, or neutral on the stock market for the next six months.

• NAAIM Exposure Index

  medium

  Represents the average exposure to US Equity markets reported by active investment managers.

Data Sources

• CNN Business

  Provides the daily composite Fear & Greed Index and its underlying components.

• American Association of Individual Investors

  Publishes the weekly AAII Sentiment Survey results.

• National Association of Active Investment Managers

  Provides the weekly NAAIM Exposure Index data.

Example Questions This Pillar Answers

• → Will the S&P 500 Index close higher in the next 30 days?
• → Will Bitcoin's price be over $70,000 by the end of the month?
• → Will the VIX (Volatility Index) close below 15 this week?

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