|
|
|
|
|
|
|
One answer to the question of how we can find a balance between the yin of fear and the yang of greed is to let our strong egos temper both ends of the polarity through clear, rational, discerning, and highly focused thinking, which leads to thorough evaluation and better decision making. Then, when emotion comes in, it will work to enhance the process instead of impeding it. We will continue to examine methods to balance fear and greed in Chapter 5, the final part of the fear and greed trilogy. |
|
|
|
|
|
|
|
|
Example of Overreaction: From Fear to Greed |
|
|
|
|
|
|
|
|
To end this chapter, I want to give an example of how market overreaction to initially perceived scary news may be quickly turned around, leading to frenzied buying, as traders leap in to take advantage of the panic selling. This is an example of how the further the market moves to one extreme out of fear, the more likely it is to swing back in the other direction out of greed. |
|
|
|
|
|
|
|
|
On May 1, 1999, only a half hour after the market opened, a panic reaction ensued to the impending news that Robert Rubin was resigning as secretary of the treasury. The Dow was already down 200 points at the time the news actually broke and for a few minutes after. |
|
|
|
|
|
|
|
|
Within one hour (8 A.M. PST) of the newsbreak of Rubin's resignation, the NASDAQ was up and the Dow had cut its loss from -200 to -60. Traders began to reconsider what the resignation would mean to the market beyond the immediate knee-jerk reaction of change to the administration. |
|
|
|
|
|
|
|
|
A cooler assessment was that perhaps it didn't matter much who was in Rubin's position and that his leaving the job would not appreciably affect the daily psychology or functioning of the market. |
|
|
|
|
|
|
|
|
The "market mind" changed from fear and panic to a dash to get back in. By 8:50 A.M., the Dow was down -36 and the NASDAQ was up 27. By 11:20 A.M., the Dow was down only 16 and the NASDAQ was up 32. By noon, the Dow was unchanged and the NASDAQ was up 35. |
|
|
|
|
|
|
|
|
Up until 20 minutes before the close the Dow was a couple of points in the plus column and the NASDAQ was up 41. A sell-off the last few minutes left the Dow down 25 for the day and the NASDAQ finished up 37. All this on a day when the market was initially down 200 points due to the Rubin resignation. |
|
|
|
|
|