Fear and Greed Index: CNN's Market Sentiment Barometer
When the Fear and Greed Index hits extreme fear (below 25), the market historically bounces. When it hits extreme greed (above 75), caution is warranted. Here's how to read and use this sentiment indicator.
The Fear and Greed Index, developed by CNN Business, measures seven market sentiment factors on a scale of 0 to 100. Zero represents extreme fear, 100 represents extreme greed, and 50 is neutral. The premise is simple but powerful: when investors are extremely fearful, stocks are often undervalued and near a bottom. When investors are extremely greedy, stocks are often overvalued and near a top. By quantifying the emotional state of the market, the index provides a contrarian signal that has historically been useful at extreme readings. Compare the Fear and Greed Index with the VIX →
Real-world example: October 2022: the index fell to 18 (extreme fear). The S&P 500 bottomed at 3,577 and then staged a 25% rally over the next six months. March 2020: the index hit 12 during the COVID crash, marking the exact panic low. Late 2021: the index reached 76 (extreme greed), and the S&P 500 topped three months later before entering a bear market.
The Seven Factors
1. Stock Price Breadth
Measures the number of stocks on the NYSE trading at 52-week highs versus those at 52-week lows. When more stocks are hitting highs than lows, breadth is strong and the market is in greed territory. When more stocks are hitting lows, breadth is weak and fear dominates. This factor captures whether the market's movement is broad-based or concentrated in a few names. Learn more about market breadth indicators →
2. Market Momentum
Compares the S&P 500's current level to its 125-day moving average. The further the index trades above this average, the more overextended it is and the higher the greed reading. Conversely, when the S&P 500 trades significantly below its 125-day MA, the index signals fear. This is a trend-following component that captures the market's inertia.
3. Put/Call Ratio
Compares the volume of put options traded to call options traded. A low put/call ratio means more calls than puts are being traded, indicating bullish sentiment and greed. A high ratio means puts dominate, indicating bearish sentiment and fear. This factor captures the options market's positioning. How to interpret the put/call ratio →
4. Junk Bond Demand
Measures the yield spread between high-yield (junk) bonds and investment-grade bonds. When spreads are tight, investors are confident enough to buy riskier bonds, signaling greed. When spreads widen sharply, investors flee to safety, signaling fear. This factor bridges the stock and bond markets.
5. Market Volatility (VIX)
Uses the VIX index as a fear gauge. A low VIX (below 15) indicates complacency and greed — investors are not pricing in risk. A high VIX (above 30) indicates fear. Extreme VIX spikes above 40 historically coincide with panic bottoms. Understanding VIX as a fear gauge →
6. Safe Haven Demand
Compares stock performance to bond performance. When stocks are outperforming bonds, the market is in risk-on mode and greed is elevated. When bonds outperform stocks, investors are seeking safety and fear dominates. This factor captures the rotation between risk assets and safe havens.
7. Safe Haven Demand (Alternative)
Compares gold performance to stock performance. When stocks are rising and gold is falling or flat, investors prefer risk assets and greed is high. When gold is rising while stocks struggle, fear is driving capital toward traditional safe havens. This factor adds a commodities-based view of risk appetite.
How to Interpret the Index
Below 25: Extreme Fear
Historically a buy signal. Markets tend to be near bottoms when fear is at its peak. The March 2020 reading of 12 and the October 2022 reading of 18 both marked significant market lows. When the index is in this zone, the best course of action is often to be buying rather than selling. Panic is usually the wrong move.
25-45: Fear
The market is cautious but not panicking. This zone often presents buying opportunities if other indicators align, but it is not as clear a signal as extreme fear. Look for confirmation from other technical and sentiment tools before committing capital.
45-55: Neutral
No strong signal. The market is balanced between fear and greed. In this zone, fundamentals and individual stock analysis matter more than sentiment. The index is least useful in the neutral range and should not be relied upon for trading decisions.
55-75: Greed
Rising market with positive momentum. An uptrend is in place, but the market is becoming extended. This zone is not a sell signal by itself, but it warrants caution. Consider taking partial profits or tightening stop-losses as the index approaches extreme greed territory.
Above 75: Extreme Greed
Historically a sell signal. Late 2021 saw the index hit 76, and the market topped within three months. January 2018 hit 78, followed by a sharp correction. When the index is in extreme greed territory, it suggests that bullish sentiment has become excessive and a reversal is likely. This is a warning to reduce exposure or implement hedges.
What is the Fear and Greed Index?
The Fear and Greed Index is a market sentiment indicator created by CNN Business that measures seven factors to quantify whether investors are acting out of fear or greed. It ranges from 0 (extreme fear) to 100 (extreme greed), with 50 representing neutral sentiment. The index is designed as a contrarian indicator: when fear is extreme, it is often a buying opportunity, and when greed is extreme, it is often time to be cautious.
Is the Fear and Greed Index a good market timing tool?
The index works best at extreme readings. Extreme fear (below 25) and extreme greed (above 75) have historically provided reliable contrarian signals. However, it is less useful in the middle ranges and should not be used as a standalone timing tool. The index is backward-looking and its components can give conflicting signals. It works best as part of a broader toolkit alongside the VIX, put/call ratio, and market breadth indicators. It can also stay in extreme greed territory for extended periods during long bull markets — from 2013 to 2014, the index stayed above 70 for months.
How is the Fear and Greed Index calculated?
The index averages seven equally weighted factors: stock price breadth (NYSE high/low ratio), market momentum (S&P 500 vs 125-day MA), the put/call ratio, junk bond demand (high-yield vs investment-grade spreads), market volatility (VIX), safe haven demand (stocks vs bonds), and an alternative safe haven measure (stocks vs gold). Each factor is normalized to a 0-100 scale, and the seven scores are averaged to produce the final index value. CNN updates the index daily during market hours.
What should I do when the index is at extreme fear?
Historically, extreme fear readings have been excellent buying opportunities. When the index falls below 25, consider increasing equity exposure, especially in high-quality names that have been oversold. That said, the index can stay in fear territory during prolonged bear markets. Always combine the signal with technical analysis, valuation metrics, and your personal risk tolerance. Extreme fear is a signal to be greedy when others are fearful, but it is not a guarantee of an immediate bottom. Strategies for investing during downturns →
Related Resources
VIX Volatility Index Guide
The VIX is a key component of the Fear and Greed Index. Learn how to read and trade it.
Put/Call Ratio Guide
Another sentiment indicator measuring options market positioning.
Market Breadth Indicators
Stock price breadth is one of the seven Fear and Greed components.
Investing During a Recession
How to position your portfolio when fear dominates the market.
Divergence Trading Guide
Spot divergences between price and sentiment for trading signals.
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