Bad News is Good News

For weeks, no, months we have been bombarded with nothing but negative news about the economy in general and thousands of individual companies. The stock market has dropped thousands of points and more than $8 trillion in paper assets have disappeared.

Note I said paper assets because until you turn it into spendable money these numbers are but a figure on a piece of paper. Sure that doesn't make you feel any better when you bought Lucent at $80 and have seen it go to 80 cents. You could have protected you profits or reduced your loss if you have placed an open stop-loss order with your broker. Brokers hate this, but YOU must protect you capital because he is not going to.

This past 2 weeks the bad news has continued to be shoveled out by the news media, but instead of making the market go down it has rallied about 1,000 points. Having been a floor trader for many years my experience with this kind of reaction tells me what is going on. The market is ignoring the bad stuff and has decided to go UP. Hooray! The traders are grasping at anything that looks bullish and not paying any attention to the negatives.

The market had become so oversold that almost anything will cause it to advance. Now you want to know if this is "the Bottom". No one can know for sure because the long -term trend remains down and is still in place. The voice of the market is now clearly saying, "I don't want to go down for a while". It might even allow the stock prices to continue to rise. How far and for how long - don't ask. No one knows. The stock market remains an enigma wrapped in a mystery. A few very astute (or lucky) folks are able to understand market language and make profits whether it goes up or down. Mr. Average Broker (also Mr. Average Financial Planner) has no idea what the market is saying. They have not taken the time to learn their trade.

Many times what is actually bad news makes the market go up. Here is one example. The weekly unemployment figure comes out to show there were 30,000 fewer jobs. That isn't good news. The DOW jumps up 100 points. Huh? The Wall Street mavens were predicting job losses of 55,000 so this number is a blessing. See what I mean? It is not the actual news, but the difference in what was expected and what actually occurred. You can apply this to almost every statistic put out by important government and private agencies.

The same applies to good news that does not move the market up. What you think you see is not always what you get. Before you grasp any figure as either bullish or bearish find out what number was expected and wait for the reaction to it.

Bad news can be good news and visa versa.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005