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Is the bull back? (03/30/2008)
By Al Thomas

This past week we have seen a tremendous up move in all the major indexes: DOW, S&P and NASDAQ.

The talking heads and cheerleaders on CNBC-TV have been

excited proclaiming the bottom is in and the market is headed higher. Could be, but let's examine the facts before plunking money on the speculation of the outcome.

There are two methods of analyzing the stock market. Most analysts rely heavily on fundamental analysis. This is the study of various sections of the economy and its effect upon a particular company. The one first looked at is the P/E Ratio, the Price/Earnings ratio. If the investor buys the stock today how many years of earnings will it take to return the price paid. If $40 was paid for a stock with a P/E of 18 it would take 18 years to get back to the price paid.

The P/E will vary from 3 to 5 (rare these days) to infinity if the company has no earnings at the time. The general market swing for the DOW and S&P is between 6 to 20 although recently it has gone over 20. The higher the number the less desirable the stock or the general market index. Currently it is running about 18-19. Technical analysts pay no attention to these numbers.

Technical analysis is the study of the price action of the individual stock or index as well as the analysis of the picture of the price action in a chart. Almost every fundamental analysts looks at a few technicals.

It should be kept in mind that all analysis is based on history.

From this historical data, fundamental or technical, the prediction of future price is made; therefore, everyone is guessing. Some are better guessers than others. Once in awhile some person makes his reputation on one good guess. Probably luck.

Market predictions are short, intermediate and long term. The

investor's goal must fit into one of these categories. When hearing predictions on TV, radio or in various publications the category of the writer must be kept in mind.

Investors always like bullish views. Few investors do introspection - self analysis. Understanding themselves will go a long way toward profitable returns. When an investor follows the advice of any predictor he abdicates his own responsibility.. What he is doing is finding someone to blame if a particular investment doesn't work out.

This is an ostrich technique - hiding his head in the sand. Like it or not he must look in the mirror to see who is to blame.

Don't rely on others to tell you. It is your money. If you don't want to take the time to learn how to manage it do not blame others.

Is the bull market back? Everyone is guessing. Ask that guy in the mirror.

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 at no charge on www.mutualfundmagic.com to discover why he's the man that Wall Street does not want you to know.

Copyright 2008 All rights reserved.

 

 

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