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Emotionally Driven

March 15, 2013 – 5:24 pm

imagesWith improving economic numbers out this week and a continued low inflation outlook the market continued to rally. This morning it appears to be taking a breather but the trend is clearly up.

In the short term the market can be emotionally driven. We are seeing evidence of that today with investors piling in yet at ever decreasing volume. Investors and traders tend to be overly optimistic or overly pessimistic at times and because emotion can drive prices over short periods it can make the otherwise intelligent person make painful mistakes.

In the long term emotion plays no part in stock prices. That may seem contrary to logic in lieu of my previous statement but the fact remains that stock prices move up and down based on a specific company’s earnings and that translates to the earnings of the overall market.

The difficult task is separating short term thinking where emotions play a significant role, and long term thinking when it is all about earnings and future earnings.

If you can control the only two emotions that matter: fear and greed, you will be a successful investor. So which is it today? Are the market participants greedy or are they fearful that they will miss out on the rally?

Good Trading
Steve Peasley

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