Is the Fear & Greed Index Becoming a Victim of Its Own Success?

I’ve noticed something about the Fear & Greed Index that rarely gets discussed:
Its reputation as a “contrarian indicator” may actually dampen market declines. When everyone sees “Extreme Fear” and believes it’s time to buy, the panic doesn’t deepen as it might have in the past—potentially muting major market lows.

This creates a feedback loop:

The index signals “buy the fear,”

Enough traders pile in,

The market stabilizes before real capitulation sets in.

When a widely-followed counter-indicator becomes common knowledge, it can lose its edge. In today’s markets, these signals may serve more as social safety nets than as true predictors of sentiment extremes.

Bottom line: If the “fear” signal stops working, or stops triggering buying, it could be a warning that the market’s safety net is gone. I wonder, is the VIX subject to the same mitigating effect?

The Fear & Greed Index has never been truly tested during a long term bear market.
But then it may partly be why we have not had one in so long.

Would love to hear your thoughts—has anyone else noticed this effect?