From Fear to Greed

Mid-week market update: The market’s turnaround on Monday was remarkable. Going into Friday, expectations for the Geneva trade talks weren’t high. Trump had floated a reduction in the tariff rate to 80%. Instead, the U.S. cut the rate to 30%, and China cut its rate to 10%. With recession tail-risk fading, it’s not a surprise that markets went full risk-on.

 

There are lots of reasons to turn bullish. Numerous price momentum studies point to significant higher stock prices. On the other hand, the Fear & Greed Index has recovered from a fearful to a greedy reading. It may be a time for a pause in the advance.

 

 

 

Bullish Momentum

I am seeing signs of strong price momentum and breadth thrusts everywhere. The market experienced a deGraaf Breadth Thrust on Monday, which is defined as 55% of S&P 500 stocks reaching a 20-day high. If history is any guide, investors should see higher prices ahead.

 

 

MarketWatch reported that Bespoke found that the VIX Index fell from 40 to 20 in record time, which is another sign of strong and sustained price momentum.

 

 

 

A Pause Ahead?

On the other hand, the market has arguably risen too quickly and it’s due for a pause. John Authers at Bloomberg observed that the current rally is highly reminiscent of the price surge off the August 1982 generational bottom. Even then, the market stalled after the initial advance (annotations in red are mine).

 

 

Indeed, the market has become overbought. The VIX Index (bottom panel) reached the bottom of its Bollinger Band earlier in the week, and such conditions usually don’t last. Some sideways consolidation or pullback would be no surprise here. Support can be found at the 61.8% Fibonacci retracement level of about 5640.

 

 

The current advance has been led by the Magnificent Seven, and broader breadth indicators have been a little weak, which is a short-term concern.

 

 

Seth Golden pointed out that the “Nasdaq 100 on verge of triggering an overheated condition that typically precedes a pullback or consolidation”.
 

 

 

In summary, don’t be afraid to be bullish, but be cautious near-term. Buy any dip that appears.

 

4 thoughts on “From Fear to Greed

  1. Market is very unstable mentally, volatile too! There may be a lot of people on the wrong foot or on the sidelines, so who knows, we could get FOMO, euphoria, the works. But I personally don’t trust this market, and even though it might melt up, soon after that it will likely melt down. We have loads of debt, zombie companies, people behind on mortgages and credit cards.
    Personally I am not buying anything, just holding on to what I have hoping for a melt up, hoping I’m smart enough to get out well.

  2. Investors should remain in a defensive posture in their portfolio positioning. 5/10/25.

    In summary, don’t be afraid to be bullish, but be cautious near-term. Buy any dip that appears. 5/14/25.
    Which is it???

  3. The tone of this post is clearly more bullish. I guess Cam’s Trend Model turned neutral or positive. “Weight of the evidence” (price) is signaling: RISK ON for the intermediate term (12month…)

  4. Did y’all see the Tesla robot dance? I gotta admit it’s freaky awesome. I guess my Walmart greeter career and shelf stocker career is at risk.
    Things that contribute to manias.
    Kindleberger talks about a displacement that gets things going. We are having them at ever increasing speed. All kinds of them.
    But yeah, check out the bot, soon C3PO will be saying, “but he’s not golden, looks more like a stormtrooper”

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