I have been fascinated for some time of the notion that all markets are irrational, emotional, bi-polar, living, evolving beings. Yes, fundamentals of supply and demand must take hold in the long run, as economic fact in history has proven out, but during short and intermediate periods fundamentals have almost no place. Sentiment, mood and feelings are all in play and the concept of the pendulum is in full “swing” and that, yes, it tends to overreact.
This point was again spelled out to me in a recent article I read, “The death of equities.” Contrarian indicators from front page stories. The study covered 20 years worth of cover stories from BusinessWeek, Fortune, and Forbes Magazines.
“Headlines from featured stories in Business Week, Fortune, and Forbes were collected for a 20-year period to determine whether positive stories are associated with superior future performance and negative stories are associated with inferior future performance for the featured company. “Superior” and “inferior” were determined in comparison with an index or another company in the same industry and of the same size. Statistical testing implied that positive stories generally indicate the end of superior performance and negative news generally indicates the end of poor performance.”
Financial Analysts Journal
http://www.cfapubs.org/doi/abs/10.2469/faj.v63.n2.4520
Saverio Manzo
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