What is the Fear & Greed Index?
The Fear & Greed Index is a sentiment composite that measures whether investors are overly fearful or greedy. It ranges from 0 (Extreme Fear) to 100 (Extreme Greed).
Components
| Factor | What It Measures |
|---|---|
| VIX | Options market fear |
| Put/Call Ratio | Hedging activity |
| Market Breadth | Participation |
| Safe Haven Demand | Flight to bonds/gold |
| Junk Bond Demand | Risk appetite |
| Market Momentum | Trend strength |
How to Interpret
| Score | Sentiment | Contrarian Signal |
|---|---|---|
| 0-25 | Extreme Fear | Potential buying opportunity |
| 25-45 | Fear | Markets cautious |
| 45-55 | Neutral | No clear edge |
| 55-75 | Greed | Markets optimistic |
| 75-100 | Extreme Greed | Potential selling opportunity |
The Contrarian Edge
Warren Buffett's famous quote applies here: "Be fearful when others are greedy, and greedy when others are fearful."
Extreme readings often precede reversals.
Limitations
- Sentiment can stay extreme longer than expected
- Not a timing tool - use with other signals
- Works best at extremes, neutral zone is noise