The type of price action we have seen makes me think of possible thoughts that the public could have had during the past months.

09 March - S&P 676. The typical private investor would say: "It's over. No way I will get my money back from this mess. I knew I had to sell… Moreover, I am losing so much that I do not want to risk anything more than I have already sunk into this black hole"

09 May - S&P 929. They would say: "Come on. It is only a rebound. It is going down again soon. I am not going to put money in here"

31 July - S&P 987. The public: "Unbelievable what I missed. May be this market has really turned around. The recession has a V shape and they will fix the economy… Well, I am even on some of the positions, I reduce my exposure and sell something"

5 October - S&P 1054. "Wow. Something is going on here! They have information we do not have. I am sure the market will continue like this until the Christmas rally. They will drive it higher. How stupid I was not to enter this market last March and to start selling during the summer. I should have known that things could not be so bad! It is true that the economy is recovering. I must buy now!".

Let's see a possible scenario after a few weeks:

Some time in November/December. S&P 900: "Oh no! I messed it up again…"

And by the way, the up gap of this morning [2009/10/05, S&P opened 1043 after closing 1036.40 last night] seems to urge investors and the public to jump on board a fast running train that will not give other opportunities. Do it now or you will have to pay much more to get in!

Good luck to the buyers.

Dr. Pezzutti is a quantitative analyst and speculator who blogs as Short-TermTrading.

Art Cooper comments:

In his book Mass Psychology, James Dines prints a graph annotated with the typical investor's changing thoughts as the price of his investment changes, very similar to those you gave.





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