CNN Fear & Greed Index vs. S&P 500

The "Fear & Greed Index" from CNN Business is currently showing "moderate Fear" with a reading of 42 on a scale of zero to one hundred. Here is a snapshot of the index for today.

Fear & Greed Index for May 8, 2019

This chart shows the Fear and Greed index readings over the past 3 years plotted with the S&P 500 over the same period.

This index is a summation of seven indicators explained in detail here. 

1. Stock Price Momentum: The S&P 500 versus its 125-day moving average
2. Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange
3. Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining.
4. Put and Call Options: The put/call ratio, which compares the trading volume of bullish call options relative to the trading volume of bearish put options
5. Junk Bond Demand: The spread between yields on investment grade bonds and junk bonds
6. Market Volatility: The VIX, which measures volatility
7. Safe Haven Demand: The difference in returns for stocks versus Treasuries

How I use this information:

You can see from the two graphs below that my portfolio is well above its 2018 peak while the S&P 500 with dividends reinvested in SPY is back where it started.  This "ratcheting" of returns adds up over time, especially with compounding.

I use periods of strength with highly bullish sentiment (Max greed on the Fear and Greed charts) to take profits then I use the cash to buy again when others are fearful.  You can see from my Explore Portfolio performance graph that this has allowed me to crush the returns of the S&P 500 while having far less risk with typically 60 to 65% in stocks.  If you are young, you could probably do even better with more in my Explore Stocks as I did when I was much younger. 

Kirk Lindstrom's Investment Letter

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To understand more about my method, please read these KEY articles:

• Make Money In A Flat Market With Asset Allocation & Market Volatility
• Winning the Zigs, losing on the Zags - Why small investors usually do poorly
• Be Your Own Financial Advisor - Save The High Fees!

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