Tuesday, August 21, 2007

Watch for Dead Cats Bouncing

It seems global markets have all of a sudden forgotten that they have plunged over the last few weeks. At the best of times sharemarket psychology is difficult to come to grips with but we appear to have a patient with bi-polar disorder here. Mr Market moves in mysterious ways.

Gains have carried over two days now and credit woes, crunches and squeezes seem to be distant memories for investors.

What has changed to give investors enthusiasm and verve to go out and spend cash on equities again?

Nothing.

As a whole, investors are still unclear as to the extent of the credit driven market woes and any reversal of the previous selling of stocks seems premature until the full picture develops.

I don't necessarily think that it is a mistake to buy beaten down stocks but it seems a little odd to me that the market as a whole seems to by discounting the last two weeks all of a sudden like nothing has happened.

It is likely that volatility and downwards pressure will continue on global markets until we know more about the reasons for recent falls.

Watch out for that dead cat bounce.

c Share Investor 2007