Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: tradermike_1999 who started this subject	3/21/2001 1:35:20 PM
From: tradermike_1999	Read Replies (1) of 74559

What a fall after the rate cut. Look at the chart! What happened is that Lawrence Kudlow, Wayne Angell, and the perma bulls went around the talk shows this weekend and said that the Fed needs to cut by 75 points. Wild gamblers bought into the Fed meeting thinking that this would happen and when the announcement failed to materialize like they expected they had to sell and lick their wounds. We are now entering a new phase in the bear market. During the first phase most investors don't believe the market is going to fall. They think the first drop is another buy the dip opportunity. In the second phase sentiment still remains positive among the vast majority of investors, even though the market continues to drop. We saw this back in December and January as the market made new lows and investor intelligence surveys showed that people were more bullish than they had been in years. During this second phase a few smart investors separate themselves from the herd and get out. The final and third phase occurs when the herd begins to realize that they are in a bear market. More and more investors begin to sell and take their losses as stocks fall to new lows. The selling momentum takes on a life of its own and causes stocks to accelerate quickly to the downside. Despite the steady decline most investors refuse to give up and get out of the market. They refuse to take a loss or give up the belief that the stock market is the only way that they can get rich. Some go absolutely crazy and try to double down and buy every time they see the market rally. The final phase doesn't end until these people give up and sell at the bottom. By that time sentiment becomes extremely negative. This third phase can take weeks or even months to run its course and it doesn't end in one day. It is a process that unfolds over time. Greenspan kicked off this third phase today. The optimists and people suckered by CNBC and the analysts have held the hope that Alan Greenspan would save the market by cutting interest today. Today he proved to everyone that he can't and won't. The Nasdaq closed on a new low on a day that the Fed cut rates. Now people will feel completely uneasy and more and more will panic as the weeks go on.

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