Major Market Moves

Last week’s newsletter concerned avoiding the trade to catch short term gains. This newsletter is about catching the major market moves and avoiding the noise. Also at the end are 8 additional tidbits of knowledge.

This last week, the Wall Street Journal had an article about how the recent rise in the stock market may be coming to an end. The next day, the Wall Street Journal had the Senior Analysts of Wall Street firms give their prediction for the S&P 500 at year’s end with the consensus being about a 3-4% increase to a level of 1040 – 1050. This is all information good for filling a newspaper and little else. By the way, this level of 1043 was reached this week. Time does fly as you get older.

A book called A Random Walk Down Wall Street had a chapter on the lack of value of following advice from the Senior Analysts paid by Wall Street firms. You may remember a study was done during the 1980’s by the Wall Street Journal to evaluate the stock picking skill for Senior Analysts. In a head to head stock picking competition, stock performance of people selecting stocks by throwing darts at the Wall Street Journal taped to the wall was compared to the stock performance of that picked by Senior Analysts. This study showed statistically that both groups had the same performance. The bottom line is that these Analysts get paid a lot of money, did I mention your money, to make the firm look smart and to justify making moves for clients to generate revenue.

What I have found is that an investor is the most successful when a major market move is identified and followed. When the inflection point is reached then it is time to make an investment change. When you hear an expert on TV stating how the relation of the Euro to the Yen is impacting the stock market you will probably be better off changing the channel.

What are some Major Market Moves? The first is the economy is improving, GDP is growing and this provides growth for stocks in the stock market. Secondly, higher government borrowing is going to increase long term interest rates due to supply and demand.