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  • View the Market With a Steely Glaze

    By Rev Shark
    RealMoney.com Contributor
    5/19/2006 8:37 AM EDT

    "The sign of an intelligent people is their ability to control emotions by the application of reason."

    -- Marya Mannes
    Sharp moves in the market, like we are experiencing now, have a tendency to make investors more emotional and less coldly logically. The irony is that when we experience strong moves, up or down, it is precisely the time that we should put forth even more effort to come up with a logical and reasonable way of dealing with the market and taking advantage of the new opportunities that are being created.

    The sharp drop we have experienced over the past week has shook up a lot of market players and many are now inclined to make emotional decisions. Those who were caught too long simply want to escape the pain of losses; many of those who are bearish are invigorated and embracing the idea that this is just a taste of what is to come; and many short-term traders are hyperventilating over the possibility of catching a major turn.

    There are a lot of different ways to approach the market at this juncture but before you develop your strategy you must set aside your emotions. One of the worst things you can do at a time like this is to buy aggressively simply because you have suffered big losses and want to recoup them immediately. It is very important to be more methodical and patient after you suffer a loss rather than let your emotions push you to make big bets and throw caution to the wind because you feel things can't get much worse.

    If you have positions that are causing you undue pain and making you feel emotional, pare them back a bit even if it feels like it is exactly the wrong time to do it Your goal after the carnage this week should be to evaluate the market with hard cold logic. If you then want to buy back some stocks that you have sold, that is fine but getting out from under the things that are causing you to be emotional is the key.

    Although this market move has been terribly painful for many, it is the sort of action that leads to more and better opportunities at some point. There is a good likelihood that we will see some major rotational shifts and that means a new crop of opportunities with room to run. Just make sure you set aside your emotions so you can more fully appreciate what lies ahead.

    We have an upbeat open on the way following a pretty good report from Dell, some upgrades and a bounce in overseas markets. However, after the whipsaw yesterday from some morning strength I except investors are going to be a bit nervous and skittish about trying to catch a bounce again. Throw in the fact that it's options expiration and we have a much needed weekend in front of us, and it is likely to be a tricky day of trading.

    At the time of publication, De Porre had no positions in stock mentioned, although holdings can change at any time.

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