Interesting new indicator here from CNN Money that attempts to track the level of fear and greed in the market. They calculate the index using 7 indicators:
Investors are driven by two emotions: fear and greed. Too much fear can sink stocks well below where they should be. When investors get greedy, they can bid up stock prices way too far.
So what emotion is driving the market now? CNNMoney’s Fear & Greed index makes it clear.
The current reading of 86 is consistent with a market in which participants are extremely greedy. I haven’t run much in terms of backtesting this indicator, but it looks like one that’s worth keeping an eye on.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.