13.01.25 - Extreme fear hits markets

The CNN Fear & Greed Index hits the “Extreme Fear” level, indicating the risk aversion among investors. The index is a measure of market sentiment, based on factors such as volatility, stock price momentum, market breadth, and demand for safe assets like bonds.

Source: CNN, 13.01.2025

Markets: Market sell-off continues on a broad base as interest rates and volatility rise.

My View: Cross-asset correlation starts to increase indicating a heightened market uncertainty and the broader market correction. Investors got caught on the wrong foot starting the investment year 2025 with pure optimism around. In December, the cash levels hit the lowest level. All-in stance without any hedging as the put/call ratio is still on low levels.

The Fear & Greed Index is a contrarian indicator. A “extreme fear” level normally indicates a buying opportunity. However, as the momentum of increasing interest rates might continue, further downward pressure on equities cannot be ruled out in the short-term. Markets seem to be close to some support levels. Before I go back to increase my risk exposure, I would like to see these technical support levels to be successfully tested.
Based on the latest market patterns, the pendulum could easily hit the downside as an overreaction could be seen for once also on the negative side. A negative momentum is just about to start and the speculative traders did not yet leave the market.

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