Extreme Greed and the Ride to the Bottom

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).  (click to enlarge)

Fear & Greed Composite Index

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On Thursday, FGIC reached level 11 – a sign of great euphoria in the markets.

Examining my five years of history, all three prior occasions of the index reaching this level, were not harbingers of an imminent correction. On the contrary, in the previous two, a parabolic uptrend had began (marked by dashed arrows).

The rise of FGIC to extreme greed readings (+8 and higher) inevitably ends with a fall to its opposite, the extreme fear (FGIC -8 and lower). In the past, the time elapsed from the first day of extreme greed to the first of extreme fear averaged 140 calendar days (between 57 and 260).

The current top got started on August 4, 132 days ago.

(This article has been posted on SpikeTrade. Follow FGIC updates on www.spiketrade.com)