Trading the Stock Market’s Fear-Greed Two-Step

The stock market basically flips between two states: fear and greed. If it isn’t in one or the other, it’s on the way from one to the other. When investors are at their most fearful it’s generally time to buy, and when they’re at their most greed-headed, it’s generally time to sell.

So, is this fear-greed two-step something you can quantify? Many have tried, using everything from the VIX to contrarian magazine indicators, but I thought it would be fun to use Google. My entirely playful attempt comes courtesy of Google Trends (again!). I ran “fear” against “rich” (no-one searches for greed, but they do search for wealth-building proxies, like “get rich quick”), and then overlayed the result with the S&P 500 for the same period. The result is interesting:



  1. I don’t see any detectable pattern – the “rich” line is mostly constant, and if anything, “fear” lags the run-ups. Note no “fear” peak at the 2004 bottom.
    If anything, this’ll just be a rough “sentiment” measure, and there are a lot of those.

  2. Actually, it sort of looks like the crossover, when fear crosses rich, looks interesting. I can almost see now someone pitching a roomful of investors on a “proprietary black box indicator overlaid with signal processing analysis developed by our ex-NASA engineer”.

  3. The graph is so squished that it is hard to see the pattern.
    How about using a different scale for the word search totals?

  4. Roger Bohn says:

    I think there is a business here: using web sites and media to measure investing exuberance, basically. But as this graph shows, it’s not trivial: it will need lots of signal processing and collating of multiple sources. After all, if “Efficient Market” theory is even approximately correct, market prices already incorporate some approximation of this information.

  5. How do you get the S&P chart in there? That is neat, but I can’t do it just by inserting s&p 500.

  6. Fear is a function of the political cycle, you are looking at the run-up to the election. Of course, the business corresponds when the business and politics is war.
    Desire to be rich, at least 20% more, is a constant. We may, however, collectively delude ourselves in to thinking we can get more, now. Bring on the bubble! Or at least the greater fools.

  7. I think this method has some potentential, we need to work on building a larger continuum of fear/greed keywords and overlaying a wider variety of graphs, adding news events to adjust for war fears, flu fears etc. vs fear of loss.