Indicator Worry + Market Drop = Positive Outlook

Friday, October 2, 2009

wall question markThe stock market’s fall yesterday resulted from “shaky,” “disturbing” and “weak” economic indicators and the worry they created. Interestingly, the indicators didn’t produce bad readings, just less good than many analysts hoped for. The Wall Street Journal said it right: “More Signs Point to Economic Recovery” (page A-2). Such market moves are an indicator of their own, and the news is good for stocks. Here’s why…

The common (and accurate) belief is that a bull market typically climbs a “wall of worry,” meaning that some investors don’t buy until facts disprove their concerns. This is especially true following a bear market, when all the old, bad news is still fresh in mind.

Because trends rarely (never?) follow a steady course, we can witness bad days in bull markets and good days in bear ones. Those days bring forth pundits and news reports that support the reversal and suggest that now there is a new trend starting. Then the main bull or bear trend resumes.

The point to keep in mind nowadays is that it is tough to produce negative news that isn’t already being worried about by many investors. The wall of worry exists and is slippery, making for quick drops. Yesterday is a perfect example.

So, continue to ignore those indicators and focus on the future. It is actually looking brighter now. I will have more to say about that in the monthly newsletter.

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