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Euphoria can be gauged through tools such as the CNN Fear and Greed Index. Investors should monitor social media platforms such as Reddit's Wall Street Bets or even casual conversations with acquaintances who might suddenly express interest in investments they previously dismissed. Signs of widespread excitement are red flags signaling that a market correction could be imminent.
Illogical Valuations
The second sign is illogical valuations, suggesting that many investments are overvalued based on unsustainable paths to profitability. During periods leading up to market crashes, investors often find themselves assigning bloated valuations to assets with little rational basis for such pricing.