Table of Contents

The Fear & Greed Index: What It Is and How It Works

By

澳洲幸运5官方开奖结果体彩网:Daniel Liberto

Updated April 08, 2024

Reviewed by Eric Estevez

Fact checked by

Yarilet Perez

Fear and Greed Index — Investopedia / Mira Norian

What Is the Fear & Greed Index?

The Fear & Greed Index is a measure developed by CNN Business to gauge investor sentiment. It indicates how emotions influence the amount investors are willing to pay for stocks, which in turn provides a window into whether stocks are fairly priced at any given point i🌼n time.

The index is based on the logic that excessive fear will drive share prices down, whereas excessive greed will drive prices up.

Key Takeaways

The Fear & Greed Index was developed by CNN Business to measure whether stocks are fairly priced.
The index attempts to determine how emotions influence how much investors are willing to pay for stocks.
The index assumes that fear drives stocks lower, while greed boosts stock values.
The index is calculated based on seven indicators, which each measure a distinct aspect of stock market behavior.

How the Fear & Greed Index Works

The aim of the Fear & Greed Index is to assess 澳洲幸运5官方开奖结果体彩网:market sentiment. Because investing is often emotional and reactionary, mood can influence an investor's decision to buy or sell stock. The influence of 24-hour news and information networks can create strong reactions from investors, known as the 澳洲幸运5官方开奖结果体彩网:CNN effect.

The Fear & Greed Index attempts to gauge market trends based on the premise that fear results in stocks trading below their 澳洲幸运5官方开奖结果体彩网:intrinsic value and that greed causes upward trends. The index can be seen as both a legitimate investment research tool and a 澳洲幸运5官方开奖结果体彩网:barometer for market timing.

Tip

While the Fear & Greed Index is a useful indicator, it is not the only available tool to make investment decisions. If you decide to use the index, make sure you do your research and compile inform💦ation from other sources before you make any important moves.

The Fear & Greed Index Indicators

The index is based on seven underlying indicators:

Stock Price Momentum: A measure of the S&P 500 versus its 125-day 澳洲幸运5官方开奖结果体彩网:moving average (MA).
Stock Price Strength: The number of stocks hitting 52-week highs versus those hitting 52-week lows on the 澳洲幸运5官方开奖结果体彩网:New York Stock Exchange (NYSE).
Stock Price Breadth: Analyzing the 澳洲幸运5官方开奖结果体彩网:trading volumes in rising stocks against declining stocks.
Put and Call Options: The extent to which put options lag behind call options, signifying greed, or surpasses them, indicating fear.
Junk Bond Demand: Measures the spread between yields on 澳洲幸运5官方开奖结果体彩网:investment-grade bonds and junk bonds.
Market Volatility: The 澳洲幸运5官方开奖结果体彩网:CBOE's Volatility Index (VIX) based on a 50-day MA.
Safe Haven Demand: The difference in returns for stocks versus 澳洲幸运5官方开奖结果体彩网:treasuries.

The index is scored by taking an equal-weighted average of the indicators. A reading of 50 is deemed neutral. Higher numbers signal ꧑greater greed; lower numbers signal greater fear.

Fear & Greed Index Scores and Sentiments
Score	Sentiment
0 to 24	Extreme Fear
25 to 44	Fear
45 to 55	Neutral
56 to 75	Greed
76 to 100	Extreme Greed

Source: CNN Business

Past Fear & Greed Index Readings

Historically, the index has been a reliable indicator of turns in 澳洲幸运5官方开奖结果体彩网:equity markets. The index sank to a low of 12 in September 2008, when the S&P 500 fell to a three-year low in the aftermath of the 澳洲幸运5官方开奖结果体彩网:Lehman Brothers bankruptcy and the near-demise of insurance giant AIG. By contrast, it traded over 90 in September 2012 as global equities rallied following the 澳洲幸运5官方开奖结果体彩网:Federal Reserve's third round of 澳洲幸运5官方开奖结果体彩网:quantitative easing.

On March 12, 2020, during the rise of the COVID-19 pandemic, the index fell to an annual low of 2 when stocks plunged 10% and entered a 澳洲幸运5官方开奖结果体彩网:bear market. By November 2020, the index registered at 69 in the extreme greed category territory when optimism grew about a coronavirus vaccine.

The Fear &ܫamp; Greed Index vs. the 𒐪Cryptocurrency Index

A similar index based on fear and greed and tailored to the cryptocurrency market was introduced by Alternative.me, a software recommendation website. This adapted version of the index was developed from various online sources to create a sentiment measure for Bitcoin and other 澳洲幸运5官方开奖结果体彩网:cryptocurrencies. According to the index developers, crypto market behavior can be as emotional as traditional markets.

The crypto fear and greed index𓆏 from Alternative uses the following inputs:

Price 澳洲幸运5官方开奖结果体彩网:volatility over the past 30 and 90 days
Market volume and momentum
Social media mentions on X platform (formerly Twitter) via coin hashtags
Bitcoin market cap dominance
Google Trends data for Bitcoin-related searches

What Is a Fear & Greed Index?

The Fear & Greed Index helps gauge stock market movements and whether stocks are priced fairly. The index is based on the logic that excessive fear drives down share prices, and too much greed has the opposite effect. Alternative.me created a similar index to gauge cryptocurrency market sentiment.

How Is CNN Business Fear & Greed Index Calculated?

Seven factors are graded to establish how much fear and greed there is in the market, and an equal-weighted average is taken across them. Indicators include stock price momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility, and safe-haven demand.

How Do Fear and Greed Affect the Decisions of Investors?

Many investors are emotional and reactionary, with fear and greed being the 澳洲幸运5官方开奖结果体彩网:two pre⛄dominant emotions affecting investors.

The Bottom Line

Investor sentiment is often characterized by two emotions, fear and greed. The CNN Business Fear & Greed Index quantifies this facet of 澳洲幸运5官方开奖结果体彩网:market psychology on a scale of 0 as the most fearful to 100 as the most greedy. The company, Alternative.me, created a crypto-specific index that fol🦄lows sentiment for Bitcoin and major cryptocꦇurrencies.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

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