edition.cnn.com - Fear and greed

The Fear and Greed index is now at *80*, which is remarkable.

If you visit the link and click Timeline you can see how unusual this is.

You can also see that this measurement tends to be cyclical, and big highs tend to be followed by quite long and steady runs back downwards towards fear, usually taking 6-8 weeks to play out from high back to low.

Key drivers of the reading today seem to be

a) breadth of new highs vs lows, very bullish

b) volume of stocks going up vs volume for down, very bullish

c) puts being abandoned / calls being opened, very bullish

VIX rose 8% intraday yesterday, but it is still relatively low. There is some question as to whether this is due to a shift to <30 day betting with options.

The standout measurement that is holding the market back from its ascension to Bull Nirvana and CAPE 50 forever, is the Junk Bond reading.

The junk bond yield spread vs. investment grade bonds is increasing and nearing a year high, pointing to increasing fear / unwillingness to hold trash bonds for bonus yield. Notably, it spiked up very sharply this week.

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I continue to believe this is a technical-driven, and FOMO-driven, and gambling-driven bear rally which is about to crash (probably today, actually - 3rd Feb 2023) a) from buyer fatigue after too many green days, and b) because of quite bad earnings results coming from the biggest growth companies - Facebook, Apple, Google, Amazon, but also many others, the semiconductor industry in particular.

Still, I am effectively fully invested right now, holding defensives and bonds/cash, which seem not too overpriced at present. If I'm right and we see a sharp dump very soon, I won't suffer too badly, and I may even gain if the market pivots back into defensives. If I'm wrong, I'll be dragged upwards eventually without the stress and horror that all bears feel when they misjudge the low and watch the train disappearing over the horizon without them.

Heads, I won't lose too badly, Tails, I will win eventually after a few months feeling sad and left out.

lux