The regime of the market matters. If the markets are in an extreme of crisis or euphoria, there will be higher volatility and a chance for reversal. Extremes cannot last, so investors should be ready for market change. We are currently in a state of euphoria which is unlikely to continue. 2023 was a difficult year because we moved from euphoria to normal and back again to euphoria.
The SSGA market regime indicator which is scaled between 0 and 100 and uses volatility and market spread information as the key indicator forms a set of five states to describe the market. The states seem to match well with market behavior and can serve as an early warning system of market extremes.
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