Nothing Creates Buying Like A Rising Stock Price

The psychology of financial markets is primal. Nothing will attract the attention of buyers like a rising stock price, just as the inverse is true, in that a falling stock price will bring on even more sellers. More basic yet is the fact that nobody has money to buy in a down market, yet in a rising market investors do very silly things with their investment dollars. Just the acronym, "credit default swap" should have made an investment professional take pause, yet the venerable AIG sold them without as much as a thought to the risk they were piling onto their balance sheet and to anyone who would pony up the money. Many conservative institutions entrusted with investors capital dove head first in to what we now know was a very shallow pool.

The markets today are strewn with cautionary signs posted at every intersection. Its as if, after a spectacular crash with multiple casualties and horrific injuries by the survivors, on a highway that begged for a stop sign prior to the accident, that city council has directed the police to install and enforce ridiculously low speed limits to satisfy the conscience of the authorities who's responsibility it was to make the roadways safe in their domicile.

Stocks have not just bottomed out but went lower in price than they could have absent the panic, propelled by the deep sleep the regulators were in for years and driven by the drunken need for profits by the leaders of some of the largest financial institutions in the world. And now, despite stock prices rising and debt markets thawing for over 6 months, with more clarity in corporate balance sheets than seen in years and identifiable risk in assets thought to be poisonous as little as a year ago, investors are cautioned to slow down and take heed of the new speed limit signs. Yes, Wall Street has a conscience!

The smart investment banks and institutions employing a disciplined investment approach during the past decade have begun to take on what is, in absolute terms, identifiable and measured risk, in assets deemed toxic in the heat of the panic. Companies like Bank America (NYSE: BAC) and General Electric (NYSE: GE) are primed to move substantially higher in stock price as their management teams expand their balance sheets into low risk and high return assets.

Taking advantage of the confluence of positive market psychology, likely upside earnings surprises, and some of the smartest management teams around is a recipe for a successful speculation in the October options cycle.

A rising stock price will always attract new buyers!