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I’ve been tracking something odd for months now, and it’s finally starting to correct itself.
The Fear and Greed Index — one of the most widely watched sentiment indicators out there — has been giving us backward signals for weeks. Markets were climbing while the index screamed extreme fear.
It made no sense.
To make things even more confusing, markets recently opened bearish after an ugly overnight move lower. The S&P 500 (SPX) was down about 0.5% before the bell, the kind of drop you’d expect to send sentiment plunging. But instead, the opposite happened.
Last week the index sat at 31, deep in fear mode. Since then, SPX pulled back, yet fear didn’t increase. It fell. The index moved to 48 — right into neutral territory.
And that’s not a bad thing. That’s exactly what you want to see when markets are behaving normally. Thursday’s reading was at 43, and 50 is “neutral.”
What This Shift Really Means
When fear drops while markets consolidate, it tells me we’re getting back to rational behavior. For months, strength triggered panic and weakness triggered more panic. Now the market is moving lower in a controlled way, and sentiment is responding appropriately.
Part of understanding this shift is knowing how the index works. It aggregates seven indicators: momentum measured by SPX versus its 125-day moving average, stock price strength through 52-week highs and lows, volume trends, the five-day put-call ratio, VIX levels, junk bond demand and safe haven demand.
When these components land near the middle, it signals balance.
Seasonal trends also matter here. Every Tuesday, my market outlook includes a seasonal read on where we are in the cycle. Right now, the seasonal backdrop isn’t one that typically breeds extremes. Neutral sentiment fits that picture perfectly.
It also helps to look under the hood. Internal measures like the percentage of stocks trading above their 50-day moving average give a clearer read on market health. Lately those internals have been stabilizing, which aligns with a fear reading drifting toward neutral.
How to Use This in Your Trading
I don’t trade sentiment alone, but I pay attention to extremes. Typically you buy in extreme fear and take profits in extreme greed — a simple contrarian framework.
But we’re nowhere near an extreme right now. We’re in the middle, which means the market isn’t handing out any obvious sentiment-driven setups.
What it does tell me is that some of the weirdness we’ve been dealing with is fading. The index is behaving normally again. Markets are behaving normally again. And when things get normal, it becomes easier to spot the next real opportunity.
Graham Lindman
Graham Lindman Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. Other Traders Might Ignore a ‘Small’ Move Like This
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We develop tools and strategies to the best of our ability, but no one can guarantee the future. There is always a risk of loss when trading. Past performance is not indicative of future results. From 10/05/23-12/3/25 the average return per trade winners and losers was 22.38% with an average winner of 91.51% and a 61.8% win rate over a 4-day hold time.
