Market Sentiment – When the “tried and true” no longer holds

Observing the markets over the last several weeks, one cannot help but feel a sense of foreboding that rational thought has ceased, and mob mentality has taken over. Both governments and the common man are reacting to the situation rather than looking towards a long term “fix” to the marketplace. Is this so strange? No, when you consider leaders are just as human and you and me. When disaster looms on “your watch”, the initial tendency is to look to others to blame. After which, the next tendency would be to take some or any form of action, wisely or unwisely, to show that you are on top of things. Human nature is fallible, if nothing else. The general market then is reduced to a series of “sound bites” in terms of guidance. Couple this with huge uncertainty and lack of concrete information in the marketplace, this leads to over-reaction, be it optimism or pessimism. Complicate things further by introducing program trading algorithms and there you have the formula for massive swings in the marketplace.

So, can money be made still in this environment? Perhaps, but in such a situation, throw out TA and FA. Look instead to the baser human instincts of fear and greed. Herd mentality is the rule of the day, and the successful short term trader will be one who can read the sentiments of the hour (or day) accurately. Long term traders should not be impacted as by focusing on the intrinsic value of a stock, returns have proven superior over the medium to long term.