Eoin Treacy of Fullermoney points out that if any further evidence of a bearish climax was needed, one should look no further than the poignant cover of the most recent Economist.

23-sep-2.jpg

Eoin adds the following commentary that also conveys my current thinking: ”Making decisions is stressful. It is much easier to do nothing than decide whether one’s current course of action is correct or needs to be altered. When urgency is added to the equation, we come under greater pressure because we often feel we do not have enough time to make an informed decision. Add money into the mix and stress levels increase. Leverage increases the potential for anxiety even further. In a deteriorating market, the perception of the need to make a decision grows all the time.

“Investors who sell as they reach their ‘pain threshold’ help to make up the minds of more people, which reinforces the trend. This helps explain why markets can accelerate lower. This is, at least in part, why so many investors in money-market funds were heading for the exit last week.

“However, occasions when emotions take the place of rational analysis are not good times to make investments decisions. It throws into sharp contrast the many Wall Street adages about buying when everyone else is scared. Listening to these prognostications when a market is rising and confidence is high is easy. Acting in the correct manner when sentiment is plumbing the depths is quite another. This is especially true when investors are quoting the definition of a stock down 90%, is one that was down 80% and halved.

“We have long held that the best time to buy our favourite themes was following a correction. While committing all of one’s capital to the market at current levels would be a rash move, building an investment position incrementally would appear to be a better strategy. We continue to run the risk that markets may eventually move lower. However, the facts are that many sectors have been sold aggressively and are rallying from support. That support is of at least near-term significance.

“The short covering rally that started on Friday is not over and most markets, particularly those that had the largest short positions. still have potential to rally further. However, it is only once the short covering rally expires and markets consolidate that we will see whether the September lows hold. Volatility remains high and we will continue to be presented with interesting buying opportunities.”

Source: Eoin Treacy, Fullermoney, September 22, 2008.

Related articles:
September – Off to a Rough Start
Words from the (investment) wise for the week that was (September 15 – 21, 2008)

 

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More on this topic (What's this?)
Sentiment Swings From Bullish To Bearish (Disciplined Approach to Investing, 7/22/10)
Stock Market Technicals: Bearish Engulfing Pattern Is Cause For Concern (market folly, 6/30/10)
How Close are we to a Secular Bear Market Bottom? (The Contrary Investing Report, 7/14/10)
Read more on Bear market at Wikinvest

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