Please explain why "worry is good for rallies". (October 11, 2001)
Emotion is a contrarian indicator. The old saying 'just when everything was going well . . .' has some wisdom behind it. Remember when all of the analysts were so bullish in early 2000 as the Nasdaq had rallied 80%? It was never going to stop. Just about that time it did. History shows that when everyone thinks the market will continue to rise, it is just about done on the move higher. Why? Because everyone is in the market at that point. There are no doubters still holding out, keeping cash on hand. They have all joined into the rally, and there is no cash to keep driving things higher. As long as there are serious doubters about a rally, there will be money held out of the market. There will be short sellers shorting the move when they think it has topped. There will be advisors telling there clients to stay out of the market. So, even as we see many institutions buying, there are still those managers that are skeptical; we still see television analysts shaking their heads in doubt. That means there is still fuel out there to keep the rally going when the doubters start throwing in the towel and put that idle money to work. Thus, continued worry means the rally is not tapped out. There are trillions of dollars sitting around still. Bit by bit (and even faster in some points this week), that money is put in the market. It is good that it is a slow process; that gives us the likelihood of a longer rally ahead. Yes, we like worry.
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