- Dow Jones Industrial Average (DJIA) futures bounced back in early trading Tuesday, shaking off the geopolitical tension between Trump and Iran.
- The stock market is now at ‘extreme greed’ which is likely to trigger a flurry of investors FOMOing into stocks.
- Prominent economist Jeremy Siegel warns of a final euphoric melt-up before stock market correction.
After two jittery days on the stock market, Dow Jones Industrial Average (DJIA) futures point to a strong rebound on Tuesday morning . And despite rising geopolitical tensions, all signs point to a final, euphoric blow-out for the Dow and S&P (*********************************************************************.
CNN’sfear and greed indexnow reads “extreme greed,”the highest level in more than two years. Investors are greedily rushing into stocks to squeeze the last drops out of this decade-long bull market. The fear of missing out (FOMO) could push the DJIA into a melt-up phase, exploring new record highs, before the inevitable breakdown.
Dow rebounds as Iran tension fades
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Stock market hits ‘extreme greed’
The CNN fear and greed index is a tool that measures investor sentiment in the equity market. At a reading of (*************************************************************************, the index is flashing its highest level in two years. With theDow and S&P pushing into record highs, investors are getting greedy.() ******************************
The fear and greed index hits a two-year high. Source: CNN
What does this mean? It’s likely that retail investors will throw money at stocks on the back of positive headlines and new record highs. It’s a rough indicator of FOMO which could push the market into a euphoria phase.
Indeed, last time the indicator was this high, in late (***************************************************************, the Dow entered a blow-out run, chalking up a further (************************************************************************************% before correcting in early (**************************************************************. This is a classic late-stage euphoria sign.Last time CNN’s gauge hit “extreme greed” (marked in red), the Dow soared 19% higher before correcting. Source: TradingView / CCN
What does this mean? It’s likely that retail investors will throw money at stocks on the back of positive headlines and new record highs. It’s a rough indicator of FOMO which could push the market into a euphoria phase.
Indeed, last time the indicator was this high, in late (***************************************************************, the Dow entered a blow-out run, chalking up a further (************************************************************************************% before correcting in early (**************************************************************. This is a classic late-stage euphoria sign.
Economist warns of Dow melt-up****************
Jeremy Siegel, professor of finance at the Wharton School of Business, has a similar take. He sees a
One of the dangers is that people could be throwing risk to the wind and this thing could be a runaway. We sometimes call that a melt-up and produces prices too high.
Siegel told Barron’s Market Brief that stocks aren ‘ t yet overvalued, suggesting there is room to make a euphoric run higher. The equity market, he argues, is still supported by low interest rates and
relative trade peace between China and the USgoing into 2020.
BUT: watch out for the stock market comedown
Following any period of euphoria, there is the inevitable comedown. The stock market is no different.
Let’s look at the fear and greed index again. . While an “extreme greed” rating often indicates a short-term flurry of buying, it almost always indicates a local top. Shortly after hitting the greed phase, there is a correction as the FOMO buying becomes unsustainable.
After the late ‘greedy’ run, the DJIA erased those gains in just three months, followed by the deep Christmas selloff later in the year (see chart above) .
As Sigel warned:If there’s a shock, you come down to Earth.
This article was edited by Samburaj Das ****************************************
Last modified: January 7, (************************************************************************************: ************************************************************************ (PM UTC
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