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Emotions Trump Logic Every Time
By Rev Shark
Street.com Contributor
10/10/2007 8:04 AM EDT
...
It may sound illogical in a market that is acting in such a positive manner, but the primary driving force for this unrelenting strength is fear. Market players are afraid they will be left out while others apparently rack up huge gains. Rather than sit on the sidelines and watch the market go higher without them, they put aside their reservations and pay up for a market and stocks that are already tremendously extended. After all, what choice do they have?
The release of the FOMC meeting minutes was given the credit for the late market strength yesterday. Commentators looked for a positive spin in the verbiage in order to justify the buying. The discussion in the minutes, which is now outdated to a good degree, could easily be seen in a negative or positive light, depending on what the market did. With the market up following the news, the commentators had to find the positive spin for the market.
The truth of the matter is that the minutes probably didn't matter at all. Buyers were ready to buy no matter what the minutes contained [auch die gestern massiv SP-Futures kaufenden Fonds, für mich basierte die Rallye nach den Fed minutes auf program-trading... - A.L.] because they are afraid they are going to miss out on further gains. There is great fear out there, and that is making folks into aggressive buyers, although there are some good technical and fundamental arguments for being a bit more conservative.
One of the hardest things to understand about the market at times is how emotions are so much more important than logic. You can make some very good arguments about why this market shouldn't be so strong. It seems almost a certainty that the real estate market will stay under pressure and that the economy will slow down, but the market action does not reflect the least bit of caution.
The great difficulty for investors is that trying to determine when emotions might cool is extremely difficult. You really have to wait until some selling kicks in before you can even consider the idea of a pullback. At some point, selling will feed on itself as folks rush to lock in some big gains, but the fear of underperforming the market and not being part of this rally is going to help prop this market up.
It is going to take some work to shake the positive emotions in this market, but when it does occur, it is important to remember that momentum tends to work both ways, and when we go down it will likely be very vigorous.
This morning we have a slightly soft open as Chevron (CVX) and Alcoa (AA) present some problems on the earnings front. Overseas markets were slightly positive, while gold is trading up on renewed weakness in the dollar and oil is flat.
By Rev Shark
Street.com Contributor
10/10/2007 8:04 AM EDT
...
It may sound illogical in a market that is acting in such a positive manner, but the primary driving force for this unrelenting strength is fear. Market players are afraid they will be left out while others apparently rack up huge gains. Rather than sit on the sidelines and watch the market go higher without them, they put aside their reservations and pay up for a market and stocks that are already tremendously extended. After all, what choice do they have?
The release of the FOMC meeting minutes was given the credit for the late market strength yesterday. Commentators looked for a positive spin in the verbiage in order to justify the buying. The discussion in the minutes, which is now outdated to a good degree, could easily be seen in a negative or positive light, depending on what the market did. With the market up following the news, the commentators had to find the positive spin for the market.
The truth of the matter is that the minutes probably didn't matter at all. Buyers were ready to buy no matter what the minutes contained [auch die gestern massiv SP-Futures kaufenden Fonds, für mich basierte die Rallye nach den Fed minutes auf program-trading... - A.L.] because they are afraid they are going to miss out on further gains. There is great fear out there, and that is making folks into aggressive buyers, although there are some good technical and fundamental arguments for being a bit more conservative.
One of the hardest things to understand about the market at times is how emotions are so much more important than logic. You can make some very good arguments about why this market shouldn't be so strong. It seems almost a certainty that the real estate market will stay under pressure and that the economy will slow down, but the market action does not reflect the least bit of caution.
The great difficulty for investors is that trying to determine when emotions might cool is extremely difficult. You really have to wait until some selling kicks in before you can even consider the idea of a pullback. At some point, selling will feed on itself as folks rush to lock in some big gains, but the fear of underperforming the market and not being part of this rally is going to help prop this market up.
It is going to take some work to shake the positive emotions in this market, but when it does occur, it is important to remember that momentum tends to work both ways, and when we go down it will likely be very vigorous.
This morning we have a slightly soft open as Chevron (CVX) and Alcoa (AA) present some problems on the earnings front. Overseas markets were slightly positive, while gold is trading up on renewed weakness in the dollar and oil is flat.
