Stop Looking for Catalysts — This Isn’t Chemistry Class

by | Apr 18, 2001

One of the bear market arguments I read this weekend stated that last week’s Nasdaq rally was a false rally because there was no catalyst to drive the rally. Well here’s another perspective. Every false rally in the Nasdaq over the past six months has been driven by a so-called catalyst — court decisions in […]

One of the bear market arguments I read this weekend stated that last week’s Nasdaq rally was a false rally because there was no catalyst to drive the rally.

Well here’s another perspective. Every false rally in the Nasdaq over the past six months has been driven by a so-called catalyst — court decisions in the Florida election, the surprise rate cut in January, the January effect — you get my point.

Maybe, just maybe, the only rallies that last are ones that don’t have catalysts, but are based instead on a solid foundation and fundamentals. In this case, what we may have is a situation where buyers have simply decided that after a 70% decline in the Nasdaq, the potential for upside is greater than the potential for downside. Such is the thinking that creates a real bottom — not “catalysts”.

I submit for your consideration that rallies engendered by so-called catalysts are the ones more likely to sputter and fail.

It seems to me people are forgetting that bull markets climb a wall of worry. Some people are looking for catalysts to destroy that wall of worry and, in effect remove all risk from investing. Such people are destined to miss the bottom by a long shot.

Just another opinion to ponder.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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