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In regard to Psychology, NOAA scientists were expecting the massive Solar
storm to peak yesterday while the market plunged. The radiation from this
storm was so great,
someone traveling in an airplane over the past few days received radiation
equivalent to getting a full set of x-rays. It was also expected to disrupt
computers, electric transmission, and telecommunications. What do you think
a force this powerful is doing to human physiology and pschology?
Radiatingly,
Norman
P.S. The Behavioral Finance list who purport to be pursuing scientific
research in behavior as applied to the financial markets, kicked me off
their list for posting scientific information such as the above NOAA
reference. This is a good example in psychology of how difficult it is for
most to think outside of their little "box".
----- Original Message -----
From: "Gentle Ox" <enchant@xxxxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Wednesday, April 04, 2001 9:53 PM
Subject: [RT] The Psychology Cycle
> FYI...Interesting Posted on the Behavioral-Finance group and I have
permission
> from the author to post it here... Stephen
>
> The Psychology Cycle
>
> It has been a while since I have posted an update, but so far I have
> not have had a compelling element to issue an update, my projections
> regarding a further DOW slide still stands. We have had a brief rally
> late March as the DOW attempted to cross 10000 again, but the attempt
> failed leading yet again to another disappointment. The technology
> warnings continues at an alarming rate with virtually all the
> technology stars, Internet stocks, B2B stocks, networking, fiber
> optics, semiconductors and wireless all warning.
> The parade of warnings stands to a contrast to apparent stable shape
> of the economy, manufacturing picked slightly and retail sales
> holding fine, while consumer confidence revered its decline.
> The contradiction has a simple explanation in my mind, it is Investor
> Psychology, the market through out history has gone through
> psychology cycles from ultimate optimism to rock bottom despair,
> those cycles hold some connection to the economic cycle, but the
> volatility is of such an extent that both cycles seems hardly
> related. For example: between 1950 and 1959, the S&P500 earning
> growth stood at 16% over that entire period, while the S&P almost
> tripled in value*, another striking example is the fact that between
> 1929 to 1932 the S&P index fail by 81% while real dividends fail by
> only 11%. Also between Jan 1973 & December 1974 the S&P index fail by
> 54% with only 6% drop in dividends during the same period*.
> The above is just an example of how the volatility of the market can
> go a long way regardless of the underlying fundamentals, the
> volatility can go either way from an extreme upside like the
> sevenfold in crease in stock prices between 1920 to 1929, compared to
> a 3 fold increase in the S&P index earnings*.
> At this moment in history I feel we are entering another period of
> overreaction following a period of another opposite overreaction,
> both periods can be regarded as an example of the psychology cycle
> unfolding in both directions.
> Based on a survey between I conducted between Feb 2001 to April 2001
> of 82 investors, 90% said that they consider fundamental analysis
> (50%) or technical analysis (40%) as the most important factor in
> their investment decisions. Both camps stand to be disappointed if
> the history stands as a guide, hence the market is not reacting to
> fundamental or technical factors but rather to a prolonged form of
> investors psychology turf that will lead to further declines as
> investors gradually escape the carnage, while causing more carnage in
> the process.
> Having said that the NASDAQ seems to be approaching a bottom, the
> NASDAQ is close to a 70% decline from its inter day high of 5132 in
> March 2000, but the fact that we are near a bottom does not mean that
> we will start a rebound in the near future, the market can remain
> stuck within that range for months to come.
> I still hold that the DOW should dip under 9000 to 8500 before we can
> have a sustainable upside in the market.
> It might be odd as a suggestion, but I think the best way to analyze
> the market those days is to hire an army of psychologists specialized
> in mass psychology, since the stock market appears to be a continues
> real life experiment of individual behavior regarding uncertainty
> within a group of people with similar conditions. Some might argue
> that EMH justify the way the market does react, but many have
> questioned the value of EMH, Robert J. Shiller book "Irrational
> Exuberance" present some strong justifications against EMH.
> According to an article by Pierre Belec on Reuters, Belec referred to
> magazine covers as perhaps a good market indicator, Belec is
> referring to a one way to measure market psychology.
> Humans in nature are irrational agents that get carried away one way
> or another regardless of the underlying investment fundamentals,
> according to my survey between Feb 2001 to April 2001, out of 72
> investors 63% reported that psychology was the reason why they lost
> in the stock market rather then a default in their analysis.
> It is not my intent to justify behavioral finance in this article, as
> there are many experts much better qualified to deal with that
> question then I do, it is my attempt is to apply the behavioral
> concept to the market today and come out with a useful prediction to
> where the market is heading. Fortunately, so far I have been right on
> my analysis for the last 6 months, but I still need a longer time
> frame to take my approach seriously. The coming few months will be
> interesting, as the divergence between the market and the real
> economy becomes more pronounce, the concept of a psychology cycle
> might gain more attention.
>
> Nawar ALSAADI
> 04/04/2001
>
> *. Figures taken from R.J Shiller book "Irrational Exuberance" 2000.
>
> http://www.geocities.com/Nawaralsaadi/Nawarmain.htm
>
>
>
>
>
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>
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>
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