“You’re making a substantial mistake if you underestimate the role emotion play in pricing securities. Emotion is especially influential during relatively short time periods. We see it every day in the market. A stock can gap higher at the open, fall below the previous day’s low, and then spring back to close at a new high,” Weinstein writes. “Obviously the underlying company didn’t change in value in a single day. In all likelihood, the company produced about the same amount of widgets as it made the day before and will make the next day. The force moving the share price is emotion, and while it’s easy to visualize its impact during a single day, investors should know that the same applies over the course of days and weeks.”
Weinstein writes, “Apple’s monthly chart has rising 60-, 90-, and 200-period moving averages. With a price near $400, the stock is also trading well above the moving average. What this tells me is that money continues to flow into Apple, but emotion during 2012 drove it too far too fast. In other words, once you remove most of the emotional drivers and ignore everything other than the core (sorry, bad pun), what you’re left with is a rising stock with solid fundamentals.”
Read more in the full article here.