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.
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)