Scott: Days like Mon. (as well as Tues.) are an aberration (or at least they used to be), and happen rarely. It is on days like that when all common sense seems to disappear. When that happens, usually some semblance of common sense returns rather quickly (ergo, the rise on Tues.). Some return to sanity quicker than others; but, eventually all will. Witness Oct. of 10 years ago: I bought Goodyear Tire for 33% of Book Value; I couldn't believe it! Throughout Mon.s decline I doubt the fundamentals on most of the stks. in the Dow changed. What did change was perception [based on assumptions]. People started assuming that any company that had any exposure to the Pacific Rim (and other parts of the world) would be hurt. Often, assumptions can be correct; however, just as often, they are proved wrong. The best example of that are earnings estimates; which, drive mkts.. Should an earnings estimate not be met, the stk. is punished. When it gets ridiculous is when people start buying something based on earnings that are estimated for 5 and 10 years down the road [oh, the trailing P/E might be 60, but it is only 5 based on 2002's earnings), absurd!
It is for those reasons that TA has become (what I consider) the only valid method to determine prices. Still, it must be coupled with common sense and experience. If you have been watching and studying a stk., the aberrations become obvious.
GeneM |
