The Fear & Greed Index

at 10:31 AM ET, 05/24/2012

Whether we’re talking about economic confidence or investor optimism, emotions drive the marketplace. On Wall Street, however, the feelings that drive decisions are even more primal. CNN has devised a new index to gauge the Street’s lizard brain: the Fear and Greed Index. It factors in seven market indicators — ranging from junk bond demand and market volatility to stock price momentum — to determine how far they deviate from the normal.

Right now, the index concludes that “extreme fear” is driving the market, whereas it was just straight-up “fear” a month ago.

(CNN Money)
Why does the index matter? “Too much fear can sink stocks well below where they should be. When investors get greedy, they can bid up stock prices way too far,” CNN explains.

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