The CNN Fear & Greed Index was highlighted this morning in one of the research publications I consume. I discussed sentiment in a post last week and I thought highlighting the index would be a good follow up to that post.
CNN’s index is driven by seven indicators that include momentum, breadth, put-call ratio and volatility among a few others, which basically are representations of short-term sentiment. I was a little surprised to see the index reading at Extreme Fear but given the short-term nature of the indicators that drive the index it’s not surprising. A reading of Extreme Fear is quite sensationalistic though, which I suppose is what CNN wants as it draws in more readers.
As I mentioned last week, short-term sentiment tends to be transitory in nature and not incredibly useful for making long-term investment decisions. As a result, CNN’s fear index probably isn’t going to be very informative for most investors.