The Fear & Greed Index is a market sentiment indicator that measures the emotional state of the Egyptian stock market on a scale from 0 (Extreme Fear) to 100 (Extreme Greed). It combines seven different indicators, each capturing a different aspect of market psychology. The index helps you understand whether the market is driven by fear (potential buying opportunity) or greed (potential caution zone). Warren Buffett famously said: "Be fearful when others are greedy, and greedy when others are fearful."
Component 1 — Market Momentum: Compares EGX30's current level to its 125-day moving average. When EGX30 is well above its moving average, it signals greed. When well below, it signals fear. The distance from the MA is scaled to 0-100. Component 2 — Stock Price Strength: Counts the number of stocks hitting 52-week highs versus lows. Many new highs = greed; many new lows = fear. A ratio of highs to lows above 2:1 indicates strong greed.
Component 3 — Stock Price Breadth: Measures advancing versus declining volume. When advancing volume (volume on stocks that closed up) significantly exceeds declining volume, it shows broad market participation in a rally — greed. When declining volume dominates, it shows broad selling — fear. This component catches situations where the index might be rising but most stocks are actually declining.
Component 4 — Market Volatility: Uses the EGX's implied or realized volatility relative to historical norms. Low volatility signals complacency and greed; high volatility signals fear and uncertainty. Specifically, the 20-day realized volatility is compared to the 52-week range of volatility. Volatility in the top quartile signals extreme fear. Component 5 — Safe Haven Demand: Measures the relative performance of stocks versus bonds (Egyptian T-bills/bonds). When investors flee stocks for the safety of government bonds, it signals fear. When they chase stock returns, it signals greed.
Component 6 — Put/Call Equivalent: Since Egypt does not have an active options market, this is approximated by measuring short-term versus long-term investor behavior — specifically, the ratio of institutional selling to buying, margin utilization rates, and foreign investor flow direction. Heavy institutional selling and rising margin utilization signal greed turning to fear. Component 7 — Junk Bond Spread Equivalent: Measures the return differential between high-risk small-cap stocks and low-risk large-cap stocks. When investors aggressively buy risky small caps (narrow spread), it signals greed. When they flee to quality large caps (wide spread), it signals fear.
How the index is calculated: Each component produces a score from 0 to 100. The seven scores are equally weighted and averaged to produce the final Fear & Greed Index. Interpretation: 0-25 = Extreme Fear (historically a buying opportunity). 25-45 = Fear. 45-55 = Neutral. 55-75 = Greed. 75-100 = Extreme Greed (historically a time for caution). The index is updated daily after market close.
Using the Fear & Greed Index: (1) Use extreme readings as contrarian signals — Extreme Fear often marks market bottoms, Extreme Greed often marks tops. (2) Do NOT use it for precise timing — it can stay at extremes for weeks. (3) Combine with technical analysis — Extreme Fear at a major EGX30 support level is a powerful buy signal. (4) Use it for position sizing — reduce position sizes when the index is at Extreme Greed, increase when at Extreme Fear. (5) The index reflects short-term sentiment, not long-term fundamentals. A market in Extreme Greed can still rise further, and a market in Extreme Fear can still fall further. This is not financial advice.
This content is for educational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.