Fear is now driving the stock market. As prices fall, investor sentiment indicators suggest that fear increases as prices fall. When sentiment gets to an extreme it often reverses, or it can become contagion and drive prices even lower as people sell their positions. Now that most sentiment gauges are at short term “Extreme Fear” readings, don’t be surprised to see prices trend back up. If they don’t, then it could be the early stages of a larger decline as fear and greed can always get even more extreme.
A simple gauge for investor sentiment is the CNN Money Fear & Greed Index.
It’s always a good time to manage, direct, and control risk. I do that by predefining my exits and knowing how much potential loss that represents in each position and across the portfolio.