What the Fear & Greed Index Actually Measures
Created by CNN Business, the index aggregates seven equally-weighted indicators that capture different dimensions of investor behaviour. When all seven align toward fear or greed simultaneously, the signal is strongest.
The 7 Components Decoded
1. Market Momentum (S&P 500 vs 125-DMA)
Measures how far the S&P 500 has moved relative to its 125-day (roughly 6-month) average. When the index trades well above the average, momentum is reading "greed." When well below, "fear."
Current: S&P at 7,500, 125-DMA at ~7,050. Roughly +6.4% above average → reading Greed.
2. Stock Price Strength (52-Week Highs vs Lows)
Counts the net number of stocks hitting new 52-week highs minus new lows on the NYSE. Broad new-high readings confirm healthy participation. Broad new-low readings signal deterioration.
Current: 87 new highs, 14 new lows on last session → moderately Greed.
3. Stock Price Breadth (McClellan Volume Summation)
Tracks the ratio of advancing stock volume to declining stock volume. A rising summation index means money is flowing broadly into stocks, not just a few mega-caps.
Current: Summation positive and rising → Greed. However, the rate of improvement is slowing — worth monitoring.
4. Put/Call Options Ratio
The 5-day average of CBOE equity put/call volume. Higher ratios = more hedging (fear). Lower ratios = more speculation (greed). This is one of the strongest individual components for timing. See our full put/call ratio guide.
Current: 0.67 → leaning Greed (complacent). Traders aren't hedging aggressively.
5. Market Volatility (VIX vs 50-DMA)
Compares VIX to its own 50-day average. When VIX is well below average, markets are complacent (greed). When well above, fear dominates.
Current: VIX 16.7, 50-DMA roughly 18.5. Below average → Greed.
6. Safe Haven Demand (Bonds vs Stocks, 20-Day)
Measures the relative 20-day performance of stocks versus bonds. When stocks are outperforming bonds, risk appetite is high (greed). When bonds outperform, investors are seeking safety (fear).
Current: Stocks outperforming → Greed. S&P +5.2% over 20 days vs bonds roughly flat.
7. Junk Bond Demand (HY Spread)
The yield spread between high-yield (junk) bonds and investment-grade bonds. Tight spreads mean investors are reaching for yield with little concern for default risk (greed). Wide spreads mean fear of defaults.
Current: HY spread at 340 bps — historically tight. Strong Greed reading.
Historical Extremes: When It Actually Worked
| Date | Reading | Event | S&P 3-Month Return After |
|---|---|---|---|
| Mar 16, 2020 | 2 (Extreme Fear) | COVID crash bottom | +39.3% |
| Dec 24, 2018 | 3 (Extreme Fear) | Fed pivot bottom | +21.4% |
| Oct 15, 2022 | 18 (Extreme Fear) | 2022 bear market bottom | +14.8% |
| Jan 4, 2018 | 92 (Extreme Greed) | Pre-Volmageddon top | -3.8% |
| Nov 8, 2021 | 84 (Extreme Greed) | Pre-2022 bear top | -12.4% |
| Jul 31, 2023 | 82 (Extreme Greed) | Pre-Q3 2023 correction | -5.2% |
A Practical Trading Framework
The Zone System
- 0–20 (Extreme Fear): Deploy cash aggressively. Add to core positions. Sell puts on quality names. This is where generational entries happen
- 20–40 (Fear): Start building positions. Scale in incrementally. This is "early" but historically rewarded within 3 months
- 40–60 (Neutral): No signal. Run your existing strategy without adjustment
- 60–80 (Greed): Tighten stops. Reduce position sizes on new entries. Don't chase. Current zone
- 80–100 (Extreme Greed): Raise cash to 15–20%. Trim winners. Add hedges (protective puts, VIX calls). Don't short — just don't add
What NOT to Do
- Don't sell everything at 80. Extreme Greed can persist for weeks. Markets can run from 80 to 95 before correcting. The signal says "stop buying," not "sell everything"
- Don't buy at 25 and expect an instant bounce. Fear can deepen before resolving. Scale in across the 20–10 range rather than going all-in at the first fear reading
- Don't use it in isolation. Combine with breadth data and survey readings for higher-conviction signals
Current Assessment: May 2026
At 72, we're in Greed territory but short of the Extreme Greed that historically precedes corrections. The S&P's 8-week winning streak has pushed sentiment higher, but it hasn't reached the speculative euphoria of November 2021 (84) or January 2018 (92).
Action: This is a zone for selectivity, not panic. Maintain existing positions. Tighten criteria for new entries (demand better valuations or higher conviction). Keep cash at 10–15% for the pullback opportunity that greed territory eventually creates.
Proflex tracks the Fear & Greed Index daily as part of our composite sentiment model — combined with put/call ratios, positioning data, and breadth — to time entries for our managed portfolio clients.