The markets are at a moment of great indecision: on Thursday and Friday the S&P500 closed slightly below its value zone but found support at -1 ATR. The NH-NL has been showing clear bearish divergences for quite some time, the last strong Spike Bounce (SB) signal has overshot its target and has been extinguished by increasing monthly new lows to be soon replaced by a new weak signal last Friday. However, the market sentiment seems to tell a different story.
The bars on the chart are colored red when FGIC is -8 or lower (Extreme Fear) and green when FGIC is +8 or higher (Extreme Greed). [ Please follow these links: original and update explanations how FGIC works. ]
The weekly and quarterly timeframes of the CNN Fear/Greed Index highlight the cyclical nature of emotions in the markets. They are both currently rising and are in their positive zones. The quarterly timeframe, which has been rising since mid-October, had not been in its positive zone since last May. The dashed vertical line marks the latest strong SB.
We have seen several times how the combination of an SB signal and a rising FGIC often signals the end of a correction. In December, three SB signals occurred but only the last one (see dotted line “S”) was followed by a rise in the FGIC: this last signal brought the S&P to new all-time highs while the FGIC broke upwards from its neutral zone and closed on Friday in its positive zone.
Bottom line: market sentiment supports rising prices. This week we want to see monthly new lows decrease and FGIC increase further.