The Fear & Greed Index is not just some bullshit chart, with arbitrary values, it is an index of 7 different indicators, all based on real data, all indexed together, that is to say, blended by a another formula that determines how much weight to give to each of the 7 constituent indicators.
The Fear & Greed Index Indicators
The index is based on seven underlying indicators:
Stock Price Momentum: A measure of the S&P 500 versus its 125-day moving average (MA).
Stock Price Strength: The number of stocks hitting 52-week highs versus those hitting 52-week lows on the New York Stock Exchange (NYSE).
Stock Price Breadth: Analyzing the trading volumes in rising stocks against declining stocks.
Put and Call Options: The extent to which put options lag behind call options, signifying greed, or surpasses them, indicating fear.
Junk Bond Demand: Measures the spread between yields on investment-grade bonds and junk bonds.
Market Volatility: The CBOE’s Volatility Index (VIX) based on a 50-day MA.
Safe Haven Demand: The difference in returns for stocks versus treasuries.
It is presented as a speedometer… because 95% of people’s eyes glaze over when they see complicated but very technically information dense graphs and graphics.
I have a decade of work experience in data analysis and reporting, making things like quarterly and annual reports for a department or entire corp or non profit, making realtime views that update based on realtime or regularly reported data…
You have to dumb things down and simplify things … and often present data in a narrative structure, as a story, even for C Suite, upper management, the Board… because they almost always have a very low attention span.
I cannot tell you the number of times a younger, brighter eyed, bushier tailed me was… fairly politely and earnestly told by VPs or Board members that… its clear that I have a broad and deep understanding of statistics and data… but you’ve got to dumb these reports down to the point someone with a hangover can understand the most important information in 30 seconds.
Only other data nerds, stats nerds and accounting tend to possess the actual ability to read more complex charts without their eyes glazing over.
This speedometer presentation by CNN is pretty much the same logic used in good UI or video game design:
If some complex measurement is important and should be easily understood by the user at a glance, present that info in a simplified way that makes use of a visual metaphor or motif is rooted in something most people would have tangible experience with.
They are presenting this for the average American reader.
The average American has the literacy level of a 5th or 6th grader.
Also, it would be innacurate to describe this index as just measuring volatility.
Volatility is a component of the measurement, but there are many other components as well… that is what an indexed metric is, a single overall ‘score’ produced by combining a bunch of indicators according to a set formula for how to do that.
I believe you, but having never encountered this index or representation before. I have no fucking clue what it’s trying to tell me. Is it showing whether the public is fearful of the economic momentum or feeling greedy? Greed doesn’t seem like a good thing.
That’d be like a consumer confidence measure, something that just polls the general public.
The fear and greed index is based off of technical measurements of various active markets.
Very broadly, it is telling you whether or not the financial class, investors, stock traders, corporations significantly involved in that, your 401k managers… are acting fearful or greedy.
A middling score close to 50 basically represents ‘reasonable, stable growth’.
Extreme fear means market participants are acting like a significant stock/bond downturn either is occuring or about to occur.
Extreme greed means market participants are acting like a huge upswing in stocks and bonds are occuring and will be maintained in the future.
You’re right that extreme greed isn’t a good thing, as it usually means a whole bunch of irresponsible financial bets are being made, that will later pop, and crash.
At the same time, extreme fear is also bad… because it basically is that crash occuring.
Maybe think of it kind of like some value you get back from your blood work.
There’s a generally accepted ‘average’ value that means you are stable, healthy.
Then, there is a range of higher and lower values that are… relatively normal, within reasonable, expected variations.
Then, there are extreme values, way outside the acceptable range, either way too high or way to low, and now its time for your doctor to start looking at treatment options.
I hope this doesn’t come off as being snarky because I’m trying to give genuine advice from the audience you’re probably trying to target but it’d be a good idea to include this bit anytime you’re presenting that graphic:
The fear and greed index is based off of technical measurements of various active markets.
Very broadly, it is telling you whether or not the financial class, investors, stock traders, corporations significantly involved in that, your 401k managers… are acting fearful or greedy.
It does a good job of summarizing what I’m supposed to gather from the index.
Genuienly… Like, I myself am autistic, and I’m willing to bet a whole lot of other data scientist type technical data sets type careerists either are as well, or are close.
What I’m trying to say is: It is genuienly difficult to be both well versed enough in the math and data… and at the same time have the requisite communication skills to present a whole lot of complex data in a way that people with less expertise can understand easily… while also at the same time not over generalizing so much that you are actually giving a just flat out false description or misleading metaphor.
I appreciate your summary of what I wrote in the last post.
https://www.investopedia.com/terms/f/fear-and-greed-index.asp
The Fear & Greed Index is not just some bullshit chart, with arbitrary values, it is an index of 7 different indicators, all based on real data, all indexed together, that is to say, blended by a another formula that determines how much weight to give to each of the 7 constituent indicators.
The Fear & Greed Index Indicators
The index is based on seven underlying indicators:
Stock Price Momentum: A measure of the S&P 500 versus its 125-day moving average (MA).
Stock Price Strength: The number of stocks hitting 52-week highs versus those hitting 52-week lows on the New York Stock Exchange (NYSE).
Stock Price Breadth: Analyzing the trading volumes in rising stocks against declining stocks.
Put and Call Options: The extent to which put options lag behind call options, signifying greed, or surpasses them, indicating fear.
Junk Bond Demand: Measures the spread between yields on investment-grade bonds and junk bonds.
Market Volatility: The CBOE’s Volatility Index (VIX) based on a 50-day MA.
Safe Haven Demand: The difference in returns for stocks versus treasuries.
It is presented as a speedometer… because 95% of people’s eyes glaze over when they see complicated but very technically information dense graphs and graphics.
I have a decade of work experience in data analysis and reporting, making things like quarterly and annual reports for a department or entire corp or non profit, making realtime views that update based on realtime or regularly reported data…
You have to dumb things down and simplify things … and often present data in a narrative structure, as a story, even for C Suite, upper management, the Board… because they almost always have a very low attention span.
I cannot tell you the number of times a younger, brighter eyed, bushier tailed me was… fairly politely and earnestly told by VPs or Board members that… its clear that I have a broad and deep understanding of statistics and data… but you’ve got to dumb these reports down to the point someone with a hangover can understand the most important information in 30 seconds.
Only other data nerds, stats nerds and accounting tend to possess the actual ability to read more complex charts without their eyes glazing over.
This speedometer presentation by CNN is pretty much the same logic used in good UI or video game design:
If some complex measurement is important and should be easily understood by the user at a glance, present that info in a simplified way that makes use of a visual metaphor or motif is rooted in something most people would have tangible experience with.
They are presenting this for the average American reader.
The average American has the literacy level of a 5th or 6th grader.
Also, it would be innacurate to describe this index as just measuring volatility.
Volatility is a component of the measurement, but there are many other components as well… that is what an indexed metric is, a single overall ‘score’ produced by combining a bunch of indicators according to a set formula for how to do that.
I believe you, but having never encountered this index or representation before. I have no fucking clue what it’s trying to tell me. Is it showing whether the public is fearful of the economic momentum or feeling greedy? Greed doesn’t seem like a good thing.
It is not a measure of public sentiment.
That’d be like a consumer confidence measure, something that just polls the general public.
The fear and greed index is based off of technical measurements of various active markets.
Very broadly, it is telling you whether or not the financial class, investors, stock traders, corporations significantly involved in that, your 401k managers… are acting fearful or greedy.
A middling score close to 50 basically represents ‘reasonable, stable growth’.
Extreme fear means market participants are acting like a significant stock/bond downturn either is occuring or about to occur.
Extreme greed means market participants are acting like a huge upswing in stocks and bonds are occuring and will be maintained in the future.
You’re right that extreme greed isn’t a good thing, as it usually means a whole bunch of irresponsible financial bets are being made, that will later pop, and crash.
At the same time, extreme fear is also bad… because it basically is that crash occuring.
Maybe think of it kind of like some value you get back from your blood work.
There’s a generally accepted ‘average’ value that means you are stable, healthy.
Then, there is a range of higher and lower values that are… relatively normal, within reasonable, expected variations.
Then, there are extreme values, way outside the acceptable range, either way too high or way to low, and now its time for your doctor to start looking at treatment options.
I hope this doesn’t come off as being snarky because I’m trying to give genuine advice from the audience you’re probably trying to target but it’d be a good idea to include this bit anytime you’re presenting that graphic:
It does a good job of summarizing what I’m supposed to gather from the index.
It doesn’t come off as snarky at all, no worries!
Genuienly… Like, I myself am autistic, and I’m willing to bet a whole lot of other data scientist type technical data sets type careerists either are as well, or are close.
What I’m trying to say is: It is genuienly difficult to be both well versed enough in the math and data… and at the same time have the requisite communication skills to present a whole lot of complex data in a way that people with less expertise can understand easily… while also at the same time not over generalizing so much that you are actually giving a just flat out false description or misleading metaphor.
I appreciate your summary of what I wrote in the last post.