A subscriber pointed out to me that the investors are now very pessimistic. When markets fall people naturally get pessimistic and looking at the publicly available CNN Fear and Greed Index, we are currently in “Extreme Fear”.
In my experience, there are two types of market fear. One type of fear is that the position I am long of is falling, and I am fearful of keeping my job. And there is the other fear that everything is going to zero, I need to liquidate my position NOW! When you get type 2 fear, then you should worry about being bearish or short. Typically, no one wants to sell, but the reality or fear of margin calls tends to force liquidation. At very extreme end of bear markets, people are just embarrassed to have been associated with the whole thing. Have we seen liquidation?
Watch with a 7-day free trial
Subscribe to Capital Flows and Asset Markets to watch this video and get 7 days of free access to the full post archives.
