The huge gains in the market in the week leading up to Thanksgiving reminded me that there is such a thing as panic buying. Mostly, we hear about panic selling – but panic buying is just as dangerous for investors.
What is panic buying? Panic buying occurs when there has been a prolonged down period in the market and everyone is expecting a bounce. Investors dive in headfirst for fear of missing the next rally. Because stocks get overheated in a very short period of time, the sentiment shifts too quickly and short-term traders look at this as an opportunity to take gains or to take smaller losses.
My advice: Don’t get caught up in panic buying. The next rally likely won’t start with a bang, but more of a whimper. When the selling is exhausted, the market will start a slow methodical climb that could last for months, or even years. Trying to time your entry perfectly is nearly impossible. If you are a long-term investor, there are deals to be had right now, but you don’t have to dive in. Wade into the water.
[Ed. Note: Nervously following the crowd is never a good thing. You need to stay calm and think logically. And that's exactly what market analyst Rick Pendergraft wants to help you do. Learn how he can help you get 12 triple-digit winners in 2009.]
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