What is the Fear & Greed Index?

Source: CNN

What is the CNN Business Fear & Greed Index?

The Fear & Greed Index is a way to gauge stock market movements and whether stocks are fairly priced. This theory is based on the logic that excessive fear tends to drive down share prices. Likewise, too much greed tends to have the opposite effect.

How is Fear & Greed Calculated?

The Fear & Greed Index is a compilation of seven different indicators that measure some aspect of stock market behavior.

They are:

• market momentum
• stock price strength
• stock price breadth
• put and call options
• junk bond demand
• market volatility, and
• safe haven demand

The index tracks how much these individual indicators deviate from their averages compared to how much they normally diverge. Moreover, the index gives each indicator equal weighting in calculating a score from 0 to 100. While, 100 representing maximum greediness and 0 signaling maximum fear.

How often is the Fear & Greed Index calculated?

Every component and the Index are calculated as soon as new data becomes available.

How to use Fear & Greed Index?

The Fear & Greed Index is used to gauge the mood of the market. Many investors are emotional and reactionary. Thus, fear and greed sentiment indicators can alert investors to their own emotions and biases that can influence their decisions. When combined fundamentals and other analytical tools, the Index can be a helpful way to assess market sentiment.

If you are keen, check out our articles on other analysis: Trust Bank Referral, Best Low Risk Cash Investments and 5 Key Events in the market this week.

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