Pawel Lech Cylkowski
𝗙𝗲𝗮𝗿-𝗱𝗿𝗶𝘃𝗲𝗻 𝗲𝗾𝘂𝗶𝘁𝗶𝗲𝘀 Dear fellow investors, Followers&Copiers, We're currently experiencing a very interesting point in the market from the psychological perspecitve of what's driving it. New ATHs on equity indices are constantly accompanied by ... persistent Fear. Yes, the Fear&Greed Index provided by CNN is constantly struggling to go into the Greed territory, despite the fact that many market participants and analysts underline that we're having a bubble and the risk-on mood is all around. 𝑾𝒉𝒚 𝒔𝒐 𝒎𝒖𝒄𝒉 𝑭𝒆𝒂𝒓 𝒕𝒉𝒆𝒏? 🤔🤔 Fear (interpreted as some kind of capital market's missing out fobia (MOFO) against lost potential returns by not participating in the market) is possibly the best driver of equity market growth. Especially in the early phase of the economic cycle, just right after Recession (as is the case today). The situaiton is still pretty uncertain, but improving, valuations are usually very high (because of the earnings recovering, but still at low post-recessional levels). Most investors are afraid to enter the market and keep awating the next correction that just don't want to come. I have written about this phenomenon here in the post called "Wall of Worry": Paradoxally a more forward-looking investor should really be happy with such a situation. At the end of the day market is a behavioral game. "Buy the Fear, sell the Greed" as they say, right? 😉 𝐈 𝐜𝐥𝐚𝐢𝐦 𝐭𝐡𝐚𝐭 𝐭𝐡𝐞 𝐥𝐨𝐧𝐠𝐞𝐫 𝐅𝐞𝐚𝐫 𝐢𝐬 𝐭𝐡𝐞 𝐦𝐚𝐢𝐧 𝐟𝐞𝐞𝐥𝐢𝐧𝐠 𝐨𝐧 𝐭𝐡𝐞 𝐦𝐚𝐫𝐤𝐞𝐭, 𝐭𝐡𝐞 𝐥𝐨𝐧𝐠𝐞𝐫 𝐚𝐧𝐝 𝐦𝐨𝐫𝐞 𝐬𝐭𝐚𝐛𝐥𝐞 𝐭𝐡𝐞 𝐛𝐮𝐥𝐥 𝐦𝐚𝐫𝐤𝐞𝐭 𝐦𝐚𝐲 𝐛𝐞. But let's take a look and the Fear&Greed Index in-depth... 𝑭&𝑮 𝑰𝒏𝒅𝒆𝒙 𝒅𝒆𝒄𝒐𝒎𝒑𝒐𝒔𝒊𝒕𝒊𝒐𝒏 This index consists of 7 major components that measure the following: 1 - Market Momentum: $SPX500 vs. its 125-day moving average 2 - Junk Bond Demand: yields on junkies 3 - Market Volatility: the level of VIX Index 4 - Put and Call Options: volumes in Calls vs. Puts in last 5 trading days 5 - Save Haven Demand: relative performance of stocks vs. bonds over last 20 trading days 6 - Stock Price Strenght: net new 52-week highs and lows for NYSE 7 - Stock Price Breadth: advancing vs. declining volume on NYSE (so called McClellan Volume Summation) Currently the index stands at only 38 pts and have struggled to break above rhe neutrla 50 pts level for long long weeks rigth in the face of now ATHs all around. The main components of the index look as follows (comments from CNN): 1 - extreme greed -The S&P 500 is 8.06% above its 125-day average. This is further above the average than has been typical during the last two years and rapid increases like this often indicate extreme greed. 2 - greed - Investors in low quality junk bonds are accepting 1.99 percentage points in additional yield over safer investment grade corporate bonds. This spread is down from recent levels and indicates that investors are pursuing higher risk strategies. 3 - neutral - The CBOE Volatility Index (VIX) is at 16.17. This is a neutral reading and indicates that market risks appear low. 4 - fear - During the last five trading days, volume in put options has lagged volume in call options by 55.00% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating fear on the part of investors. 5- fear - Stocks have outperformed bonds by 2.66 percentage points during the last 20 trading days. However, this is close to the weakest performance for stocks relative to bonds in the past two years and indicates investors are starting to flee risky stocks for the safety of bonds. 6 - extreme fear - The number of stocks hitting 52-week highs exceeds the number hitting lows but is at the lower end of its range, indicating extreme fear. 7 - extreme fear - During the last month, approximately 0.18% more of each day's volume has traded in declining issues than in advancing issues, pushing this indicator towards the lower end of its range for the last two years. 𝑪𝒐𝒏𝒄𝒍𝒖𝒔𝒊𝒐𝒏𝒔: 4 out of 7 components show fear to extreme fear levels. All the components lowering the aggregate index score relate to STOCKS, either their nominal levels (No. of new highs/lows), relative levels (relative performance to bonds), or their volumes (underlying plus options). Investors are afraid of equities - it's time to be in equities :) Yours, GlobalAlphaS $NSDQ100, $DJ30, $GER30
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