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Market Confidence Remains a Question as Most Investors Struggle to Reengage


Craig Johnson, Technical Market Strategist of Piper Jaffray, shares his insight into the market.


While stocks have moved into new multi-year highs, the lack of enthusiasm and volume is a concern if the bullish momentum is to be sustained. The question of whether the Federal Reserve has done enough to instill investor confidence in the market and economy's stability, even if only for the near term, will play out in the coming months.

In the first of a new weekly interview segment with Craig Johnson, CMT, CFA, Technical Market Strategist of Piper Jaffray, we discuss whether stocks can continue to break into new highs, and what stocks could perform particularly well in this market.

EQ: The S&P 500 (INDEXSP:.INX) continues on its uptrend, breaking through into new highs, and about a quarter of the stocks on the index are making new highs as well. With that said, why are investors still hesitant to re-enter the market?

Johnson: This is similar to what we had seen before coming out of the late-1970s, and even coming out of the 1930s. The scars of the secular bear market ended up being so great for investors that they have a hard time reengaging the process. The scars right now on the backs of investors are very deep and very fresh in their memories, and they're having a hard time pulling the trigger and reengaging. This is all part of the human psychology around the investing cycle. Most investors find it very difficult to buy stocks when stocks are down, and very difficult to sell stocks when stocks are up because they're so tied up with the emotions inside the market. This is classic from what we've seen before where investors cannot reengage the investment process after major secular bear markets.

EQ: With the Fed's announcement of a new unlimited QE3 program and providing open-ended commitment to supporting the economy, does that help to entice investors to come back in knowing that?

Johnson: The morning prior to the announcement, we wrote a piece that discussed the fact that one of the Fed's primary mandates is to create stabilization in the market, and also to create jobs. But the reality is that the Fed was not going to do anything in its statements and actions to disturb the advance that we've been seeing off of the June lows. Clearly with the market up over 200 points since, it has clearly played out to be exactly right. I would just say for the big picture side of things is, what they're ultimately trying to do is to get some confidence going for investors. If we can see confidence start to build again, that confidence will ultimately lead corporations to pull the trigger into reengaging in the hiring process.

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