The Slippery Slope of Hope

We judge a man's wisdom by his hope.
-- Ralph Waldo Emerson

There is an old saying that in a bear market, stocks slide down a slope of hope. Investors have a great tendency to be optimistic, and they constantly try to declare that the worst is over and that we are ready to start an uptrend.

The real pain and despair of a bear market comes when those hopes go unrewarded. Nothing is more discouraging than to wrongfully believe that the worst is over. That is what makes investors want to give us. Bottoms in the market come when there is little talk that we have seen the worst. They don't come when you have the New York Times, Barron's and numerous commentators on this site declaring that the bottom is in and we are ready to go back up.

The great focus on all the recent problems in the financial sector and their recent bounce is providing good intellectual arguments for some hope at this point. Who doesn't want to believe the Fed is doing the right things and that the banks have seen the worst?

At this point the major indices are showing some signs of holding above recent support and the big swings from day to day have left many folks poorly positioned for upside. As a result they send you chasing things higher and producing sharp spikes, which causes those with high levels of cash to try to get at least some exposure.

While the market has some technical potential for a further bounce the high level of hope out there in the popular press seems particularly dangerous. There are still very few good longer term setup, but in the short term some further bounces on hope that the financials have priced in the worst wouldn't come as a surprise.

None

ALL REV SHARK BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

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.