The Fear & Greed Index is widely recognized as a sentiment tool, but how well does it actually align with real market movements—specifically those of the S&P 500? In this case study, we’ll compare key moments in S&P 500 price action with corresponding Fear & Greed Index readings to evaluate how emotional extremes have historically signaled turning points.
Why the S&P 500?
The S&P 500 is the benchmark index for U.S. equities and represents the broader stock market. Since the Fear & Greed Index also focuses on U.S. market sentiment, the S&P 500 is the most relevant asset to analyze against it.
Key Fear & Greed Turning Points vs. S&P 500 Moves
🟥 March 2020 – COVID-19 Crash
- Fear & Greed Index: Dropped to 3 (Extreme Fear)
- S&P 500: Fell over 30% in just one month
- What Happened Next:
- Fed stimulus triggered a sharp rebound
- S&P 500 recovered nearly all losses within 6 months
- The extreme fear reading coincided almost perfectly with the bottom
🟩 November 2021 – Market Euphoria Peak
- Fear & Greed Index: Rose to above 90 (Extreme Greed)
- S&P 500: Hit an all-time high near 4,800
- What Followed:
- 2022 saw a prolonged decline due to rate hikes and inflation
- S&P 500 dropped over 20% in the following year
- Greed signal marked the end of the bull run
🟨 October 2022 – Bear Market Bottom Zone
- Fear & Greed Index: Hovered in the 20–25 range
- S&P 500: Hit a low near 3,500
- What Followed:
- Markets began recovering in Q4
- By mid-2023, the index had regained ~15%
- Fear lingered, but marked an accumulation phase
🟩 July 2023 – AI-Led Rally
- Fear & Greed Index: Climbed to 75+
- S&P 500: Surged on the back of tech and AI stocks
- Result:
- The index cooled off but remained in a strong uptrend
- Some profit-taking occurred, aligning with greed sentiment
Visual Summary (2019–2024)
| Period | Index Score | S&P 500 Trend | Sentiment Signal Outcome |
|---|---|---|---|
| March 2020 | 3 | Sharp crash & rebound | Accurate bottom signal |
| November 2021 | 90+ | Market top | Greed marked reversal |
| October 2022 | ~20 | Bear market base forming | Early accumulation period |
| July 2023 | 75+ | Tech rally, short pullback | Greed followed by slowdown |
Key Takeaways
✅ Extreme Fear ≠ Time to Panic
Every extreme fear period in recent years preceded strong rebounds in the S&P 500.
✅ Extreme Greed ≠ Time to Buy More
When the index crosses 80+, it often marks exhaustion in bullish sentiment and signals caution.
✅ Sentiment = Confirmation Tool
While not predictive on its own, the Fear & Greed Index can confirm overbought or oversold conditions already shown in price action or technical indicators.
How to Use This in Your Strategy
- Use Fear readings below 20 to build long-term positions in strong S&P 500 ETFs (e.g., SPY, VOO)
- Use Greed readings above 80 to tighten stops, take partial profits, or reduce risk exposure
- Combine with RSI, MACD, moving averages, and volume trends for high-conviction trades
FAQs
Can the index predict exact market tops or bottoms?
Not precisely, but it consistently aligns with emotional extremes that often occur near key turning points.
Is this method only for S&P 500?
Primarily yes. The CNN index is designed around U.S. equity markets, so it best reflects S&P 500 sentiment.
How often should I check the index?
Daily for active traders; weekly for long-term investors managing S&P 500-based portfolios.
Should I sell everything when greed is high?
No. Use it as a risk signal, not a call to exit completely. Look for supporting evidence in the charts.
Is there a crypto version that compares with BTC charts?
Yes. The Crypto Fear & Greed Index can be used the same way for Bitcoin and Ethereum.