SIGNAL TESTING
Does buying fear actually work?
We tested fourteen different market-timing strategies against 15+ years of daily S&P 500 data using CNN’s Fear & Greed Index, our own BATS score, and the MACD crossover signals from the Divergences page. Some of the intuitive rules people quote (“buy when everyone is fearful”) don’t actually beat plain buy-and-hold on their own. A few combinations do. Nothing here is cherry-picked — every strategy we ran is in the table below, including the losers.
How to read this page
The Strategy Comparison table shows what each rule would have done over the full test window. Below it, the equity curves let you see when each strategy diverged from buy-and-hold. Then we drill into forward returns after every reading of each index — that’s the honest test of whether extreme sentiment predicts anything.
Ground rules
Strategy comparison
Every strategy runs on the same trading days from January 2011 to today. Buy & Hold is the benchmark — anything below it on CAGR is a loser on total return, though some make the trade-off worthwhile by cutting drawdown or time in market. The green “BEATS BASELINE” badge marks strategies whose CAGR came in above buy-and-hold.
| Strategy | CAGR | Total return | Max drawdown | Sharpe | Days in market | Entries |
|---|
Equity curves
Starting with $1 on day one, what would each strategy have grown to? Click a legend swatch to hide or show that curve.
MACD crossover signals
The buy and sell signals on the Divergences page, run against S&P 500 history: buy when the MACD line (12, 26) crosses above its 9-period signal line after at least 10 closed bars below it, sell on the mirror-image cross after at least 10 bars above. The position changes at the close of the bar the cross is first visible on, which is the same information as acting at the next bar’s open. Three variants sit alongside it: the same cross with no 10-bar minimum, the 10-bar rule with a 200-day trend filter, and the 10-bar rule on weekly bars.
| Variant | CAGR | vs Buy & Hold | Max drawdown | Trades | Win rate | Avg trade | Avg hold |
|---|
Last 12 daily signals — 10-bar rule
| Buy | Sell | Entry | Exit | Return | Days held |
|---|
The money finding — combined extremes
Individual strategies mostly fail to beat buy-and-hold. But look what happens when we don’t time the market and instead just ask “what did SPX do in the days AFTER a signal fired?” When both indicators bottomed out at the same time (CNN Extreme Fear ≤ 25 AND BATS in the Oversold zone ≤ 30), the market’s forward returns were far above average. Not every dip is a buying opportunity — but when the crowd’s emotion (CNN) and the market’s condition (BATS) both flash the extreme at once, history says it usually is.
Forward returns by CNN F&G bucket
For every day CNN was in the given bucket, what did SPX do 1 week / 1 month / 3 months / 6 months later on average? The small percentage after each return is the hit rate — how often that horizon was positive.
| Bucket | Days | 1W | 1M | 3M | 6M |
|---|
Forward returns by BATS bucket
Same test, using BATS scores — but with our own 8-bucket taxonomy from the main gauge (Extremely Oversold through Extended), not CNN’s 5-bucket shape. BATS uses market-condition language rather than sentiment language: it measures whether the trend is healthy or breaking down, not what the crowd is feeling. The tail buckets (Extremely Oversold and Very Oversold) are rare, so the small sample sizes deserve caution — but the forward returns are strikingly consistent.
| Bucket | Days | 1W | 1M | 3M | 6M |
|---|
Note: bucket day counts are lower than on the home page’s backtest table because this test is limited to the 2011–today window where CNN Fear & Greed data exists. BATS’s own history goes back to 2007, so the home-page counts are larger.
What we actually learned
1. Buy-and-hold is very hard to beat. None of the pure “buy fear” strategies matched the S&P 500’s total return, because sitting on cash while the market grinds higher costs a lot.
2. A simple trend filter is the best risk-adjusted strategy. Just being invested when SPX is above its 200-day moving average produced most of the return with a much smaller drawdown — and it doesn’t need any sentiment input at all.
3. Extreme readings DO predict better forward returns. The bucket tables show clearly that days of CNN Extreme Fear or BATS in the Oversold zone (Extremely / Very / Oversold) were followed by above-average returns on every horizon. That’s a real signal.
4. The best use of both indicators isn’t timing — it’s conviction. When CNN read Extreme Fear AND BATS sat in the Oversold zone at the same time (~116 days out of 3,899), the 12-month forward return averaged nearly 28% with a 97% hit rate. That’s not a signal to sit on cash waiting for it; it’s a signal to add more when it happens.
5. The upside extreme is harder to fade. CNN Extreme Greed and the BATS Bullish end of the scale still had positive forward returns most of the time — markets can stay hot for a long time. Selling on either alone was a losing move over this period.