S&P 500: return of the raging bull as fear and greed index spikes

on Aug 5, 2022
  • The S&P 500 index has been in a strong bullish trend.
  • It rose even as corporate earnings growth rose at the slowest pace since 2020.
  • The fear and greed index rose to the neutral point.

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The S&P 500 index (SPX) is hovering near its highest point since June 7 of this year as investors focus on the ongoing earnings season. The index pulled back slightly on Friday after the strong US non-farm payrolls data and is trading at $4,130.

Fear and greed index and VIX

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The S&P 500 index has staged a strong recovery in the past few weeks. As a result, the closely watched fear and greed index by CNN has moved from the year-to-date low of less than 50 to the neutral point at 50. If the trend continues, there is a likelihood that the index will move to the greed level of 60.

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The stock price strength, which shows the number of S&P 500 index hitting their 52-week high, has moved to extreme greed. On the other hand, safe haven demand and put and call options have moved to the greed level while the stock price breadth is at the extreme fear level.

The average 5-day put and call ratio has dropped to 0.8, which is lower than the year-to-date high of 1.10. A lower put-to-call ratio is usually a bullish sign. The same is true with the market volatility, which is measured using the CBOE Volatility Index (VIX). VIX index has dropped to the lowest point since April.

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Therefore, these indicators point to more upside for the S&P 500 and other American indices like the Dow Jones and Russel 2000.

The S&P 500 has done well in tough conditions. For example, the Federal Reserve has hiked interest rates by 225 basis points this year, the most increases in decades. Historically, American stocks tend to underperform in a period when the Fed is hiking. 

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Meanwhile, many American companies have published relatively weak results. According to FactSet, earnings growth is the least it has been since Q4 of 2020.

S&P 500 forecast

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S&P 500
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The four-hour chart shows that the S&P 500 index has been in a strong recovery in the past few weeks. This week, it retested the important resistance point at $4,180, which was the highest point on June 2nd. It has moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has risen to the overbought level of 70.

Therefore, the index will likely keep rising as buyers target the next key resistance point at $4,500. A drop below the support at $4000 will invalidate the bullish view.

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