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Beware of the Herd

July 22, 2009 – 9:49 am

It is very difficult to fight the herd mentality. Just two weeks ago everyone feared a collapse of the stock market back down to the March lows. Oil was falling, pointing the way to a weak economy and the experts were convinced that it was going to be a lot longer before improvement showed up in the economy. Investors and traders gave back 7% of the stock market gains over a six week period.

All that changed with earnings last week. The market gained back the 7% in one week and as earnings pour in the attitude now is that maybe the worst of the economic slump is over.

Are you part of the herd? We at KPP stayed the course in the market waiting for this earnings season to point to a direction. It was very difficult to invest more money when the media and experts were saying to be defensive. We had clients that doubted our strategy and though it is far too early to cheer about staying in the market, we and more importantly, our clients have been rewarded.

The earnings and the forecast of earnings have been better than most expected. If the news continues to show a recovering economy those investors sitting on the sidelines will enter the market. That should, at some point this year, give us a strong rally. At that point the herd will be moving again and I will be asking the same question. Are you part of the herd? Sometimes, it is best to avoid the stampede.

Good Trading
Steve Peasley

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