The stock market is driven by just two emotions: fear and greed.
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” Warren Buffet.
When stocks suffer large losses for a sustained period, investors can collectively become fearful of further losses, so they start to sell ensuring that prices fall further.
When people are overtaken by the power of greed or fear that becomes rampant in a market, overreactions can take place that distorts prices.
On the side of greed, asset bubbles can inflate well beyond fundamentals.
On the fear size, sell-offs can become overdone and depress prices below where they should be.
Fear and greed create overreactions, which means that savvy traders can buy oversold assets and sell overbought ones.
See exactly when these extremes take place on all major markets, daily.