Back in July 2013, I wrote a blog post titled The Main Reason The Stock Market Keeps Going Higher. Back then, I stated the main reason driving the market higher is “A Complete Change in Investor Psychology.” Basically, the majority of people HATE the stock market…and that still hasn’t changed.
1) Of course Quantitative Easing has something to do with the market’s success, but ever since the Federal Reserve announced the unwinding of their QE program, I’ve seen the strongest price action since Sept-Dec 2010.
2) I talk to more people who PASSIONATELY HATE this market than people who are riding the uptrend. This is true with both retail investors and professional traders.
3) On the retail side, I talk to AT LEAST 2 potential clients every month who refuse to invest in the market because “we are at a top.” It’s been like this for the past 18 months! The pain from 2008 has left deep-rooted scars in the psychology of individual investors.
4) On the professional side, so many people keep shorting this market. Over the last 18 months, almost every hedge fund manager tells me the same thing “I’d be doing great if it wasn’t for my short positions.” By the way, I’m not against shorting, I’m simply against shorting in a Bull Market. It’s not worth the amount of mental anguish and frustration that it causes. It truly ruins people’s confidence when one of your main goals is to PROTECT your confidence.
5) I mostly trade momentum stocks. Companies with explosive growth and strong technical charts. The amount of hate, anger and bitterness I hear about the “valuations of these companies being too high” is INSANE. I hear it EVERY DAY and it gets old after a while. People who complain about valuations show me how little they have studied stock market history. You can’t use traditional metrics that you learned in business school to value companies that are disrupting and revolutionizing the way we do things. These companies always trade at a premium because Wall Street will pay up for growth, especially explosive growth.
I realize that this move higher won’t last forever. I also realize that we will have vicious shakeouts and quick corrections to shake out the weak hands (that’s why entry point is so important). However, I still feel the Nasdaq Composite (the LEADING index) is heading to its old highs of 5100 from the year 2000. I wrote about this in my 2014 Outlook. Yes, the main driver will be the low interest rate, liquidity-driven environment that we are currently in, but don’t underestimate the power of human psychology. The continued hatred from both retail and professional investors will be the real fuel behind the rally.
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