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Beware Of Mob Madness

 October 05, 2011 04:02 PM

Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Wednesday, the 5th of October.

Beware of Mob Madness!

What is it about mobs that make them so dangerous? The problem is mob mentality. Here you have a group of people who individually are regular folks, but put them in a crowd and they lose all sense of what is right and wrong. They justify their actions because of what they see other people doing.

Using social media sites like Twitter and Facebook, mobs were getting together for the Arab spring in the Middle East. Now we have mobs getting together in Greece and other parts of Europe, even my homeland, England! And we have the same problem here in major cities in the United States. This is what I call the dark side of social media, and one that I believe is so very dangerous.

[Related -Bank Stocks: The Misbegottenness of the Volcker Rule Truly Knows No Bounds]

Is it healthy? Is it good for America, or any country? Absolutely not!

One of the most fascinating books I have ever read about the market is Charles Mackay's, "Extraordinary Popular Delusions and the Madness of Crowds." It is a history of popular folly, first published in 1841. The book chronicles its subjects in three parts: "National Delusions", "Peculiar Follies", and "Philosophical Delusions". This book has gathered a body of academic support as a work of considerable importance in the history of social psychology and psychopathology. I highly recommend that you pick up a copy.

As you see, 170 years later we haven't changed very much as human beings. Understanding this mob phenomenon can be a huge advantage and is going to be one of the keys to being successful in the next 12 months. As always, we will do our best to keep you informed and on the right track.
COSTCO (Symbol COST) – Trade Triangle (Monthly) Long from $83.45 on 9/16/11.
Now trading @ $81.50

[Related -Gold hasn’t lost its allure in my portfolio]

MORGAN STANLEY (Symbol MS) – Trade Triangle (Monthly) short from $26.70 on 4/12/11.
Now trading @ $13.89.

RESEARCH IN MOTION (Symbol RIMM) – Trade Triangle (Monthly) short from $57.48 on 3/25/11.
Now trading @ $23.55.

Now let's go to the 6 major markets we track and update every trading day and see how we can create and maintain your wealth in 2011.

The S&P 500 index fell dramatically yesterday in the first several hours of trading. It was only an hour before close that the market realized it was heavily oversold and rallied dramatically. This rally did not change the overall trend of the market and we expect we will once again see the S&P 500 index roll over to the downside. Currently the S&P 500 is at an area of resistance and we do not expect it to move over the 1150 area. Look for resistance at 1134 which is a 50% Fibonacci retracement from the lows that were seen at 1073 yesterday. We would not rule out our ultimate target zone for this index which is the 1000 to 950 area.

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