#fearandgreedindex
Y'all know about the #CNN 😳
Fear and Greed Index, but not many are willin' to figure out it's 🤯
methodology.
📝(Nᵢ × Wᵢ), for i = 1 to 7
Where:
N₁ = Market Momentum (S&P 500 relative to its 125-day moving average)
N₂ = Stock Price Strength (Number of stocks hitting 52-week highs vs lows)
N₃ = Stock Price Breadth (Volume of shares trading on the rise vs fall)
N₄ = Put/Call Ratio
N₅ = Market Volatility (VIX)
N₆ = Safe Haven Demand (Difference in returns for stocks vs bonds)
N₇ = Junk Bond Demand (Spread between yields on investment-grade and high-yield bonds)
The weights represent the importance assigned to each of the components.
As you might notice, this index is lagging, 'cause all it's components are the market's derivatives. And the weights can be adjusted randomly.
🙂 CNN Fear&Greed indicator
∑(Nᵢ × Wᵢ) / ∑ Wᵢ, for i = 1 to 7
Where:
M₁ = (S&P 500 − SMA(125)) / Normalization over 252 days
M₂ = (New 52-week Highs − New 52-week Lows) / Normalization over 252 days
M₃ = (Volume of rising stocks) / (Volume of rising + falling stocks)
M₄ = Put/Call Ratio (normalized over 252 days)
M₅ = VIX value (normalized over 252 days)
M₆ = (Stock returns − Bond returns) / Normalization over 252 days
M₇ = (High-yield bond yield − Investment-grade bond yield) / Normalization over 252 days
Each component is multiplied by its respective weight and the total is divided by the sum of the weights.
Sum
mary: all this index can say is just - "the market grew up" or "the market fell down".