Pullbacks and the FGIC

FGIC left the extreme fear readings almost 11 months ago, it has never turned back and spent so far the longest fearlessness period in the last 6 years. All pullbacks in the last 11 months have been interrupted by medium or weak Spike Bounce signals.

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. ]

Spike Bounce signals generated while FGIC was at extreme greed readings, tended to lead to rallies of short duration and to be repeated in a short time (red stars).  On the contrary, a Spike Bounce signal when FGIC was lower (at least in the neutral zone), tended to lead to longer-lasting rallies and therefore be more significant (green stars).  If not outright panic, markets at least need to be a bit scared before recovering.

The latest Spike Bounce signal was triggered after a double low of FGIC in its neutral zone.  The historical highs reached by S&P500 this week may be read as the confirmation of the strength of the double signal of Spike Bounce + FGIC in the neutral zone, or lower.

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