CNN Money’s “Fear and Greed Index”, a calculation of seven key market indicators in order to gauge the primary emotions underlying the stock market, appears to have put in a double top at an extreme greed level.
Historically, this pattern has led to significant sell-offs in the general market as investors’ and traders’ greed, fueled by the market’s recent rally, cycle down once again to a prevalent fear level.
There is really no way to tell how far the S&P 500 index (SPX, also the SPY ETF) will fall but the last time this down cycle took place the SPY fell from a high of 211 to a low of 185 (about 250 SPX points, a 10% or so correction). There is no guarantee it will stop there.
Regardless, this is an excellent shorting opportunity across the face of the stock market, just as it will eventually lead to an fine buying opportunity later on.
Market timing. They say it can’t be done but a study of the chart below should make it rather obvious “they” don’t know what they are talking about.
(right click on the chart to view a larger image)