If you want to make money in the market, you have to do the opposite of what the crowd is doing. That’s why I love the Fear-Greed Index — it’s one of the best contrarian indicators out there.
Most traders don’t even think about it. They’re too focused on headlines, social media chatter or whatever Jim Cramer is shouting about that day.
But if you pay attention to this simple gauge of investor sentiment, you’ll start to see patterns — and opportunities — that most people miss.
How Fear and Greed Create Market Moves
Right now, the Fear-Greed Index is in fear territory.
What does that mean? Investors are scared to put money into the market. They’re waiting, hesitant, convinced the worst is coming. And when people are scared, they sell stocks, pushing prices lower.
But here’s the secret: Fear creates opportunity.
When everyone is panicking, it usually means stocks are at or near a bottom. If you’ve been looking for a time to buy, this is when you want to start paying attention.
On the flip side, when you see the Fear-Greed Index swing into greed or extreme greed, that’s when stocks are running hot.
It’s when you start hearing things like, “This stock is breaking out!” or “It’s time to buy!” But that’s exactly when the market is most vulnerable to a pullback.
Why You Should Bet Against the Crowd
Think about what happened last week. All over the place, people were talking about how stocks were breaking out. Newsletters, social media, even Cramer — they were all pushing the idea that the rally was on. And what happened?
The market tanked.
The Fear-Greed Index is a simple way to filter out the noise. When it’s below 50, that’s when you want to start looking for buys. When it’s above 50, you should be thinking about selling or at least taking some profits.
And don’t just take my word for it — look at what’s been working.
Energy (XLE), Health Care (XLV) and other “safe” sectors have been leading the market because we’ve been in fear mode. But once money rotates back into riskier assets, you’ll see beaten-down stocks in areas like Technology (XLK) and Consumer Discretionary (XLY) start to run again.
So the next time the market is in full-blown fear mode, don’t panic. That’s when you should be getting ready to strike. Because when the crowd finally decides it’s safe to buy again, it’s already too late.
The team at Lance Ippolito Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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