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What's R E A L L Y Happening?
by Tom Barrett
Remember last January and February when all the "talking heads" on investment TV were saying that the summer would be a terrible time for the markets? Never forget that these are just TV personalities, most of whom don't actively trade in the markets (although many of their guests do). Of course, Mark Haines of CNBC is a lawyer, which surely qualifies him as a market expert, doesn't it? The bottom line is that they have so many minutes that they must fill with words - whether or not those words or are accurate or even whether or not they make sense.
The Dow Jones Industrial Average has gained 1073 points since the beginning of the year. It gained 564 of those points during summer. Of the 127 points gained by the S&P 500, 43 were booked during June, July and August. And 132 of the NASDAQ Composite's 320 points gained were added during the third quarter.
In the case of all three of the "Generals", over one third of their gains for the first three quarters of the year took place during the summer. During these hot months (small pun) the Dow moved up by 6.4%, the S&P 500 by 4.4%, and the Comp by 4.5%. Pretty good for a time that most of the gurus agreed would be dismal.
What's the point? You know as well as anyone on TV about what the broad markets are going to do. Being on TV doesn't mean they know more than you. It just means they make lots of money for looking good, and you have to make yours by working hard.
It's all about trends. Last year was a terrible year in the markets, right? Wrong. It was only terrible if you were long. I hate it when I hear the gurus talk about how horrible the market is just because it is in a downtrend. It gives new investors the false impression that you can only make money when the market is going up. Out of 32 years of investing, 2002 was my best year ever. How is that possible? I didn't make one long trade last year.
I'm not stupid enough to stand in front of a moving freight train. That's what you do when you try to trade against the market trend. Neither am I going to bet my retirement money on trying to guess the market direction. I wait until the freight train goes by, and then I grab the railing and swing up onto the caboose. In other words, I wait until a clear direction has been established before I get on board. Then I take a ride until I see the direction changing.
If you had listened to the "experts", you would have been short or on the sidelines this summer. I hope most of you were reading the very clear direction the market was giving you and that you made a lot of money these last three months.
My friend Les Jacobs often tells his students to ask themselves, "What's REALLY happening?" In fact, he encourages them to write the question on a Post-it note and put it on their computer monitor. It doesn't matter what you or someone else thinks might happen. What matters is what is actually happening right now! Perhaps I should have some large signs made up with bright red letters to send to all our members: "What's REALLY happening?"
Like most good traders I know, I have CNBC on during the day where I can easily see it. But, like them, I have the SOUND OFF. It is too painful listening to the "talking heads" come up with their often ridiculous reasons as to why the markets are doing whatever they are doing. Sometimes there is a real reason - a fed meeting, an important economic report. Sometimes the market is just going down because people are selling. And no amount of talking will ever change that.
So where does that leave us? If we can't depend on all those beautiful people with all their great hair, who can we trust? Try believing in yourself. Study, learn, read your charts, do your research, USE YOUR BRAIN. Make up you own mind about what is really happening. You couldn't do any worse than the "talking heads."
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