The strong support level mentioned last week was broken down on Friday with the S&P closing below all supports: SMA 200 (not shown), the 1.5 ATR from the lows and, fractionally, the – 1 ATR. Last Friday’s 1HL setup was also invalidated.
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 last Spike Bounce signal (Strong, marked by a vertical S line), triggered two weeks ago. While the S&P reached and exceeded Spike Bounce target, FGIC never reacted to the upside and indeed continued to decline (Points 1 and 2) despite two rallies (Points A and B). On Friday it entered its extreme fear zone. We have seen several times how a non-confirmation of a Spike Bounce by FGIC is a bearish signal, suggesting that the lows of the signal bar will probably be retested or exceeded.
The inset to the left shows that all timeframes of the CNN Fear&Greed Index, from which FGIC is derived, are declining. Our FGIC data goes back to January 2016, and now is the seventh time FGIC has entered extreme fear reading. The average time in this zone has been 52 trading days, or nearly two and a half months on the calendar.
(This article has been posted on SpikeTrade. Follow FGIC updates on www.spiketrade.com)