In the latter stage of a bull market, volume and prices go up day after day. Speculative activities become rampant. Everybody is extremely optimistic. Positive expectancy is the order of the day. The cats and dogs are whipped up as well. It is at this stage of the bull market that beginners are lured into the market. They simply buy and they simply make. Now you see why beginners have beginner’s luck.
As the market rages on, more and more beginners come into the market. Dick, Tom and Harry are all laughing their ways to the bank. They put in more money and simply make more money. Everyone is boasting about his gains. The stock market is the topic of the city. Wherever you go, you hear people talking about the market. In the coffee shops, restaurants, market place and in every corner of the city, it’s the same. Every seat in the broker’s office is occupied. Every corner is crowded. Even the shoe-shine boys, ice-cream sellers and hawkers are involved.
As the speculators become mesmerized, share prices continue to shoot up. News that companies ABC, XYZ, etc is prophesied to sign big contracts here and there, and make great profits, make headlines everyday. Stocks are by now selling at exorbitant PE. “This time is different. The bull is here to stay, forever.” You heard someone remarked. The truth is that all trends must come to an end. No tree grows to heaven.
Sensing that shares are by now very much overvalued the wise start to unload. Slowly, carefully and quietly they go about their unloading so that the market will not be perturbed.
At the top, the market is the strongest. Full of hope and optimism, the naïve continue to buy and sell while the professionals are making their ways to the bank with their profits.
The partying continues. Excellent food, good wine, music and women, they are all there.
What happen after this? The Bear Raid (look out for the next posting)