One thing I have learned from years of trading and observing markets is that they always overreact. Moves triggered by natural disasters and the resulting, but seldom realized, fear of utter catastrophe ALWAYS overshoot reality. Remember, markets are driven by perception, not anything else. The Japanese disaster is a classic example of this fact happening right now. Anyone with the nerve to buy the sell-off in the S&P 500 has been rewarded handsomely over the last several days with a strong bounce back from the lows.
The fear in Japan is focused on its nuclear power industry. The earthquake and the resulting tsunami damaged several plants causing radiation leaks. This is turn, has resulted in worldwide nuclear plant shut downs over safety concerns. As you can imagine, the closed nuclear plants has led to an extreme sell off in Uranium mining stocks. I believe this sell off is overreaching. First, the worldwide nuclear plant shutdowns are temporary, other alternative energy sources are simply not enough to sustain the infrastructure at this time. Secondly, as was explained in the first paragraph, markets always overreact and this overreaction creates great opportunities in the opposite direction.
Watch the trend traders get turned into turtle soup......
