The primary driver behind this very strong action today is that too many people have been looking for the rally off the March low to stall out. As the market continues to hold up and work higher, they constantly have to scramble to cover shorts and/or find some long exposure.
Anxiety over being left behind is one of the most powerful forces in the stock market and is one of the main reasons momentum investing works so well. People are so afraid of not making money that they often jump in without much thought just so they can be part of the party. Ultimately that is what eventually leads to being caught in ugly reversals, but for many, not being part of a rally is so painful that discipline goes out the window.
The indices are hitting the highs of the day as I write, as buyers capitulate and give in to the relentless rise. Although I'm not finding much at all I want to buy at this point, I've no interest in fighting the tide.
Rev Shark Blog A Play for the Quick 5/14/2008 12:48 PM EDT You can follow speculators in and out of small-cap, thinly traded stocks, as long as you move fast.
Rev Shark Blog Frustrating Day for Some Traders 5/14/2008 11:40 AM EDT Depending on your style, days like this can force you into making decisions you wish you hadn't.
Rev Shark Blog CPI Spurs Rush to the Long Side 5/14/2008 10:08 AM EDT The numbers bring up the 'fear of being left behind' again.
James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.
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