stock maket psychology

I've been thinking a lot about the psychology and movement of the stock market. As soon as I find a decent book on the subject, I'll read it. That way I'm not just talking out my ass. Until then....

The market is the heart of capitalism. It is the core and in a very real way, feeds the economy its nutrients. Also, much like a heart it responds to different stimuli. Sometimes racing fast ahead and other times slowing down.

It is interesting to me although it is the heart of capitalism there are such fundamental differences. As a business owner it is in my best interest to do everything I can legally and morally do to eliminate competition. Less competition, more piece of the pie for me. This is not the case in the stock market. Why would I care if someone else makes money? There is only one goal in the market...and that is to make money. Which brings me to my second point.

I find it interesting how such a large group can behave like a single person. The market is composed of millions of investors with the same goal. MAKE MONEY. This is relatively easy when the body feeds the heart positive stimuli. When the economy feeds the market good news, it races ahead and nearly everyone makes money. The difficulty begins in a down economy. How do people make money?

It seems as if these millions of investors have got together in a big room and have come up with an idea on how win. They can't ignore the current economic data and push the market. That's not allowed. Instead the have decided to push the market down, down, down. They sell with such exuberance that the market is artificially low. Now that the market is too low and must come back up, so they buy and in one day there is a +1000pt day. Then they sell their profits and the cycle repeats.

This is how I see the market behaving. Like a single person who is stretching the market like a rubber band. Timing their buys and sells to make a buck in such horrible economic times. So watch the market closely and ride the waves.

And the word of the day is "Capitulation"

The fear game is over. Bulls are fighting back by inflating Apple and GE, this dares others to invest and it's changing the game. The market is about to make a frenzy comeback. Then flatten out and go down.

Watch BDK

If you're into watching where the economy is going...watch Black & Decker. They are an early cyclical stock. They will be the first respond to any kind of swing in the economy (up or down). Don't look for it to move in the near future as this recovery will be "U" shaped as opposed to a "V". That said, I believe there will be a some positive days in the week comes as the market gets over the immense fear they have.

If you're looking for good news (and there isn't much), there was improvements in the commercial paper market today as investors are slightly more confident to loan.

Waisting 10 Minutes

First off, I’m incredibly arrogant to even consider writing this blog and to think that anyone would want to read it. So why? I’ve done pretty well with stocks over the years and maybe someone might want to listen to my nonsense rants about what I’m doing in this market.

So, here are my thoughts....

This market has left the “Fundamentals Train Station” and has entered “Fearsville”. ; There is no sense that some positions have lost 50%. Does anyone actually think that Walmart will have a 30% same store sales decrease? No, given the state of the economy, they will likely increase sales. People will be moving from target to walmart to save a little money this xmas. Even an inherently overvalued P/E world, there WILL be a return to Fundamentals.

Another position I like a lot is pharmaceuticals. Specifically, I like PJP. It’s an ETF (kind of like a mutual fund without the costs) that tracks pharma’s. It’s down 20% from an already undervalued price. People still need to buy their drugs.

The last asset to look into is McDonalds (MCD). I believe that people will be going to McDonalds instead of Chili’s.

I have purchased all of the above today. Financials have been hit the hardest, but they are giving away so much leverage that I’m on the sidelines to see how they will actually make money.

I probably just wasted 10 min of my time, but oh well.