How to read the fear thermometer: three indicators that reveal when the market panics and when it's time to buy
On April 8, 2025, the S&P 500 closed at 4,983 points. Markets had just suffered their worst week since the COVID crash, TV studios were filled with grim-faced commentators, and "tariffs" was being declined in every grammatical case. The Fear & Greed Index, the most-watched mood gauge for the US market, plunged in those days to just 4 points out of 100. It's practically impossible to get closer to the absolute bottom of fear.
Key points
In April 2025, the Fear & Greed Index fell to just 4 points out of 100 – the S&P 500 has since added roughly 50%.
Outside the crisis years of 2008 and 2020, the VIX has closed above 50 points only once in its entire history: last April. In hindsight, it was an exceptional buying opportunity.
The Dow Jones is at record highs, yet sentiment has been stuck in fear territory for weeks. Such dissonance is rarely a coincidence.
Extreme fear works as a signal much more reliably than extreme greed – and that difference is crucial to how you use the indicators.
All three indicators are free. The problem isn’t access to data, but that in a panic, almost no one can bring themselves to listen.
Whoever held their stomach and bought that day is now sitting on a position with a gain of about 50%. Not after ten years. After fifteen months.
This isn’t the first time this story has played out. March 2020, December 2018, November 2008 – each time the same mechanics. Investors sold en masse just when sentiment gauges were showing extreme fear, and they bought en masse when the gauges showed euphoria. Exactly the opposite of what common sense and historical data would dictate.
And today’s summer situation shows that reading the market mood pays off even outside of crises. The Dow Jones closed at record levels in July, the S&P 500 is holding above 7,400 points – and yet the Fear & Greed Index has been languishing in fear territory since June, currently around 43 points. Meanwhile, the VIX volatility index is resting at a calm 17 points. Three thermometers, three different readings. Which one is lying?
The answer is: none. They just each measure something different. And that’s precisely why it pays to understand all three – the VIX, the put/call ratio, and the composite Fear & Greed Index. The following lines are a manual for how to piece together, from freely available numbers, a picture that most investors miss: when the market is overbought, when fear is overblown, and when the indicators are silent because they have nothing to say.
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