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). Continuous and dashed lines represent past “strong” and “medium” Spike Bounce signals, respectively.
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FGIC lost another two points during the abbreviated last week of the year. It remains in its positive zone but continued to weaken while the S&P closed at all-time highs.
2020 has been a particular year for this indicator. It never happened before that a Spike Bounce signal was triggered with FGIC in positive zone. In 2020 it happened 3 times (marked with small green arrows), the first of which was in February.
A deepening of the FGIC does not mean that a major correction is imminent: often a pullback ends when FGIC reaches the upper boundaries of the extreme fear readings (-8) – a level where the probability of a new Spike Bounce signal increases.
(This article has been posted on SpikeTrade. Follow FGIC updates on www.spiketrade.com)