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The Alchemist (04/16/2008)
By Al Thomas

Every day I am bombarded with advertising telling they have the "secret" of the market - and for a price will impart that "secret" to me. And pigs can fly.

Before I tell you one great secret of the market - for free - let's ask if the advertiser really knew the secret of the market why would he tell me - for any price?

Everyone listens to the news either on the radio, in the newspaper or TV. Those who follow the markets closely watch one of the specialty financial channels such as Bloomberg TV or CNBC-TV. Here the investor will find more information than he can use. Most of it is about buying with little about selling or protecting the investors money.

These last few months the Dow Jones Industrial Average has dropped about 2,200 points. The most recent news has been horrible. Payrolls have shrunk by 80,000, worst since 2003. The presidential candidates have promised to raise our taxes if elected.

Gas prices are making new highs every week. Food is also going up. Crude oil is over $100 a barrel. Mergers and acquisitions are falling apart because of lack of trust by lenders. Bond insurers like MBIA have been downgraded by Fitch. Consumer sentiment is at a 17-year low.

All the major indexes are down substantially for the year. Had enough?

Now for the good news. There isn't much. Most of it is technical. The number of new 52-weeks lows for individual stocks has slowed. On days when the indexes are lower the number of stocks that are lower are less than those that are higher. The number of stocks trading above their 200-day moving average has increased from 15% to 28%. Every major index has broken out above its long term (10 month) trendline. Sixteen million shares have been sold short on the New York Stock Exchange. That's bullish. And our savior at the Fed, Dr. Ben, has created a couple of hundred billion dollars to keep the banks from melting down. Cash in money market funds is 3.4 trillion that is 33% more than the low of the market in 2003.

But all the talking heads keep spouting is how bad the news is.

So here is the market "secret". Don't listen to the gurus who must talk all day long. Listen to the market. The market is quite obviously telling you it is going to go up. When a new batch of bad news comes out what does the market do? It doesn't go down. It goes up. The smart money is buying, not selling. It is the reaction to the news that counts.

In the morning the bad news may put the market down, but the really important price is the close. If you are a contrarian you must be a buyer.

Now the market is going up in spite of the news. It knows more than any individual. Watch the reaction to see where the indexes close in relation to the news. Now you know one of the great "secrets" of the market.

Copyright 2008 All rights reserved.



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