Here’s a popular S-Curve about market emotions:
The idea behind this graph is to implement “contrarian investing” or betting against the crowd. The markets, being an expression of investor emotions, have a tendency to overshoot the underlying economics that they are supposed to represent.
However, especially with the markets roiling nowadays on large bank failures and market uncertainty, very rarely do we see stock prices reflect the smooth S-curve depicted above. In reality, the curves are choppy and unpredictable.
Here’s a modified curve, based on more realistic market movements, and the sentiments of bullish and bearish players in any given market:
The emotions at play depend on which part of the curve the market is perceived to be, and what kind of player is involved:
So, imagine conversation between a bull and bear at various points across the curve, just to confirm why markets encourage bi-polar behaviour amongst its participants:
1. Market Rallies
Bull: Everything’s fine!
Bear: How high can it go?
2. Uptrend Accelerates
Bull: What a Market!
Bear: Irrational! Things are so expensive!
3. Market High
Bull: I’m gonna be rich!
Bear: I gotta get out now!
Bull: We’re now in a bull market.
Bear: How could I have been so wrong?!
5. New High/Test of High
Bull: This market’s unstoppable.
Bear: Market? Feh!
Bull: It will come back.
Bear: Thing’s are just beginning.
Bull: How low can it go?
Bear: Everything’s going to hell.
8. Downtrend accelerates
Bull: Irrational! Things are so cheap!
Bear: What a market!
9. Market Low
Bull: I gotta get out now!
Bear: I’m gonna be rich!
Bull: How could I have been so wrong?!
Bear: We’re now in a bear market!
11. New Low/Test of Low
Bull: There’s no hope!
Bear: This market’s unstoppable!
Bull: A light at the end of the tunnel!
Bear: It will come back.