Thursday, February 22, 2007

Negative financial commentary bodes well for stocks.

One way to judge the market's mood is to read the predictions by market prognosticators. If the "experts" on Yahoo! Finance are any indication, the mood is downright gloomy right now. As has usually been the case, the market should move in the opposite direction of the mood, meaning we are poised for further gains.

Here are two articles on the front page of Yahoo! Finance today:

Are years ending in 7 bad for stocks? Apparently some bloggers have found that years ending in "7" have tended to be bad for stocks, so they are predicting that the market may go down in 2007.

Right.

When people start predicting that the number 7 will hurt stocks, you know that their emotions are making them look for a reason to get out of the market. Trust me, nobody back in 1997 was suggesting that you get out of stocks because of the number 7.

Stocks are headed for a fall. This article lists 9 reasons why the market is going to fall this year, mostly having to do with what the author sees as "market euphoria." Examples include Fox's plan to start a new business channel, (Did CNBC's creation precede a market decline?) and an increase in executive bonuses. (Wow, that's never happened before!) It's ironic that this commentator is aware of the contrarian effect of emotion, but that his own negative emotion is compelling him to look for "evidence" that has nothing to do with stock market optimism.

Just remember that gloom translates into money already sitting on the sidelines with nothing to do. This money will eventually flow back into stocks when the emotions change, and that will create real price gains.

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