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The Alchemist: The mysterious 2007 (01/03/2007)
By Al Thomas

"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."

- Irving Fisher, Ph.D. in economics, Oct. 17, 1929

This is the week of predictions. Stock brokers, economists, analysts, financial planners and fools of all description are going to tell us what is going to happen in the stock market, the housing bubble, the national and global economies and all other macro and microcosms.

Before you believe any of the pundits it would be a good idea to go back to their previous year's prediction to see how "right" they were. You will be disappointed. Most of them will be 90% wrong unless their predictions were so broad and sweeping they really meant nothing.

I like the one, "The market is going to go up". That pleases most folks and is a favorite of about 99% of the brokers. Then they hit you with some wonderful stock to buy.

The consensus for 1973, 1987, 2000 and 1929 was all bullish. One of the worst case scenarios is to have everyone agreeing. When too many are running in the same direction it is the herd of lemmings going over the cliff. You don't want to run with the pack.

There is a theory called contrary opinion. When I was a floor trader it was one of the most important points of my analysis. If a particular commodity had a reading of 80% bullish I looked for an opportunity to be short or when the bullish consensus went below 40% it was time to look for a buy. When those around me were buying I was selling.

What bothers me about today's market is the overwhelming complacency that is measured by an indicator called the VIX. It is running about 10 that is at historic lows. It measures the confidence of those who own stock and it seems almost everyone thinks the market has no top and will go up forever. For a contrarian that is a red flag to watch for a change of direction.

In 1929 the market dropped about 90%. In1973-74 it broke 40%. During both those times there was only one group of stocks that went up several hundred percent - the gold mining companies.

Today there are both mutual funds and exchange traded funds (ETFs) that represent gold which makes it much easier to invest in the metal. Gold coins are also an acceptable investment.

As long as the market continues to make new highs Wall Street market mavens will be heroes. Back in 1990's everyone was a genius until 2000 when the NASDAQ broke 78%. It wasn't pretty. There was no reason for anyone to lose a large sum of money with a simple 10% stop loss in place.

I don't know what mysteries 2007 will bring, but I will predict that anyone without an exit strategy is going to have a bad year.

Al Thomas' best selling 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 and receive his market letter for 3 months at www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2007 All rights reserved. 


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