The Smart Investor Waits For Events That Will Disturb Markets

By: Dr. Gary S. Goodman
Submitted: 2007-01-17 16:16:37
Print this article | Tell a friend | For publisher | Social Bookmarking
Rating:
 

Within the last several weeks the Federal Reserve announced its long range goals for the economy and the stock market rallied.

But then, several days later, the Middle East ignited once more, sending markets sharply lower.

The Fed’s policies quite rightly inform stock valuations, because the Fed directly influences interest rates. When rates rise, investors have the option of moving their money to bonds, to CD’s, and to other interest bearing vehicles, and out of equities.

But what does the Middle East have to do with the value of Altria, parent company of Phillip Morris, maker of Marlboro cigarettes, and majority owner of Kraft?

Altria, along with most other big stocks dipped when investors heard about Lebanon. With world tensions rising, you’d think people would smoke more and Altria would spike on such news.

This example shows that markets overreact to events.

You can take advantage of this fact through diligent observation and patience because bad news is cyclical. There is regularity to it, despite its erratic appearance.

Before 9/11, for example, there was a period of unusual calm, an absence of bad news, especially for the United States. If you live in the Midwest you know that there is an eerie calm before storms, and you can take your cue from it, and seek shelter.

Recently, a stalemate was preventing progress in the Mideast, and pressures were building. The sensitive investor could have predicted there would be an aggressive change in the status quo.

Moreover, the Group of Eight conference was convening in St. Petersberg, and this event is usually accompanied by tensions and protests, with various factions positioning off of it.

Over the last few days the Dow Jones Industrial Average has rallied, probably in the belief that the Mideast conflict is stabilizing, will last no more than a few more weeks, and that radical factions will lose credibility and clout when the dust settles.

How far away are we before: (1) That picture is sullied with a significant change; or (2) Another crisis grabs our attention?

My guess is there are some surprises yet to come out of the Mideast that will roil markets, and that the rebound we’re experiencing today will be seen as a “fool’s rally” within a month or two.

Dr. Gary S. Goodman is the best-selling author of 12 books, over 700 articles, and the creator of numerous audio and video training programs, including "The Law of Large Numbers: How To Make Success Inevitable," published by Nightingale-Conant-a favorite among salespeople and entrepreneurs. For information about booking Gary to speak at your next sales, customer service or management meeting, conference or convention, please address your inquiry to: gary@customersatisfaction.com.

Article source: Expert Articles

Most Recent Articles in Stocks Mutual Funds category

  • Using Technical Analysis To Manage Risk And Maintain Top Quartile Performance - By: Dwayne Strocen
    To manage an effective risk management solution requires more than the calculation of VaR. Ultimately a successful risk management program requires the execution of an effective hedge. Technical analysis is a vital element of this strategy.
  • To Sell a Stock or Hold--When Is it Time? - By: Dr. Winton Felt
    Should you use the strategy of the long-term buy-and-hold investor or the short-term sell tactics of the trader in order to lock in small gains? Let us look at a few alternatives and possibly a strategy.
  • The Probability of a Stop Loss Being Triggered - By: Dr. Winton Felt
    Sometimes there are no obvious regions of price support that can be used as a reference for placing a stop loss. However, by using a volatility-based stop loss, you can set your stop so that it is statistically improbable that it will be triggered by a stock's normal fluctuation within a given holding period. This can give a stock enough "wiggle room" to continue its climb without a high risk of a premature sale because of a non-significant lurch of the stock.
  • Trading Veteran Reveals Must Have Hints and Tips on Trading that Every Trader Should Know - By: Philip Birchley
    Your trading system is a set of rules that you have built up that should be met before you enter a trade. The more ways that a trade is confirmed- the better and the more money you're likely to make.You might wait for a certain pattern to emerge on the charts that indicates that you should trade- so you might find a buy signal for example.
  • Should You Step into Foot Locker? - By: Dennis Biray
    With the NBA and other sport seasons flaring up this autumn, you may be wondering if now is the perfect opportunity to purchase shares of Foot Locker (FL), especially since they will be releasing earnings shortly (November 19, 2006). While such may be said as a good deduction, there are other, more profound reasons and answers to this question which, may, unfortunately, delay or even abort your decision to carry on your purchasing intentions. While all the economic and fundamental analysis may signal a strong run for this company, the technical analysis side of these indicators weighs much more heavily in a stock like Foot Locker.
  • 7 Stock Market Tips You Can't Live Without - By: Joseph Harris
    Every day there are a dozen new HOT stock market tips that guarantee your financial success. Every day there are hundreds if not thousands of people that jump on the bandwagon, and every day, each of those people are disappointed.When it comes to popular stock market tips, there is no golden ticket to striking it rich.
  • The Basics of Investing in Stocks and Shares - By: Joseph Kenny
    Stocks can be considered a tool for building wealth, as they are a part of almost every investment portfolio. They represent the ownership of a company and are bought in the form of shares. Shares refer to the stock of a particular company.
  • The Beauty of Stocks - By: Y. Ng
    Stock markets are wonderful. Stocks markets are nightmares. Should we love them or hate them?
  • Ideas on Telecommunications Stocks - Still a Good Investment? - By: Y. Ng
    Having been a finance person in the telecommunications industry for seven years, I would like to share my thoughts on this very dynamic industry. Are they a good buy now? If not, when, if at all?
  • Stock Investing: Why the Individual Often Has an Advantage Over the "Pros" - By: David Van Knapp
    Famed investor Peter Lynch said, “...the amateur investor has numerous built-in advantages that, if exploited, should result in his or her outperforming the experts, and also the market in general.”Many people believe that an individual cannot beat the market.