Börsipäev 4. oktoober

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10/4/2005, 4:14 PM

Rev Shark:

Look Before Leaping Into This Market
10/4/2005 8:45 AM EDT
I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
--Warren Buffett

Investing success depends to a great extent on finding opportunities that offer the best chance of gains with the least amount of risk. Many market participants overlook this very basic fact and instead of waiting for low-risk entry points they let emotions drive their investing. They worry more about being left behind as the market moves up than they do about finding optimal entry points.

The current market environment holds particular danger for the investor who is overly emotional and concerned about missing out on a big upside move. The market is not setup well technically for a move right now and is faced with a host of fundamental problems. We are at a place where the bulls have to hope they can leap a 7-foot high bar if they want to make money and unfortunately many seem to be willing to try.

This is a market where the risk of a rollover or pullback is particularly high, but it also is a market that attracts the overly emotional bulls who are anxious to be a step ahead of everyone else and make some quick profits. Right now the bulls are feeling particularly energized by the fact that all the recent negative news has not been able to kill this market. Their thinking is that this market knows the worst, has priced it in and therefore we are in position to move higher.

Maybe so but the problem with this market is that the risks we must take on are very high compared to the potential rewards. There certainly are good trades to be had, I see many, but we are treading in dangerous ground technically and psychologically. This is a time to make sure we spend a little extra time weighing the risks and benefits of new buys. It is a time when we should watch the emotionalism on television with detachment and objectivity.

The market is always a balancing act but we are walking an increasingly higher and wobbly wire. Keep on moving forward step by step and take the good trades you find but don't forget that it won't take much to send us falling.

Early indications are mixed. Overseas markets were mostly down a small amount, oil is down again but gold is bouncing back. We have factory order data at 10:00 am ET but generally a rather slow news flow.

Position: None

Gary B. Smith: