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Making sense of the stock market
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AP Photo/Richard Drew
With all the uncertainty in the markets today, it might be prudent to take some time to understand the nature of the the stock markets and the people who move them. Don't worry. You don't need a degree in economics. In fact, with practice, you too can become a market maven. It's largely a matter of predicting the past, joining the chorus, banking on the self-fulfillng prophesy and selectively citing your past predictions.
First, find out what popular, widely-read analysts are saying about a particular stock. You may find that "consensus among experts is that XYZ has established a support level at $10/share" (the experts came to this conclusion because XYZ has gone down to around $10 a couple of times before rising again: predicting the past),. Now you tell your readers that they should watch XYZ. If it tests and hold support at $10, they should buy on an up tick (join the chorus). Odds are, XYZ will indeed hold at $10, if you picked sufficiently popular analysts to mimic. This is because people who believe that the analysts know something they don't will not sell at $10 or less: the self-fullfilling prophesy. If enough people buy into the prediction, they will buy the stock if it rises slightly from the $10 level, driving the price still higher, and the prophesy is fulfilled. You're a genius! If the stock goes below $10, remember, you said to wait and see if it "holds the test level". You're still off the hook.
What if the popular analysts are wrong? Don't worry. If market consensus among the popular analysts is incorrect they simply declare "nobody could have seen this coming". (When I saw Paulson's face urging Congress to approve a $700 billion dollar bail out I told a broker friend the market was going to 8500. He snickered. The market went to 8500 and below. Nobody could have seen it coming. Yes, I made money.)
You're going to be wrong, a lot, but you're going to be right a lot as well. In the future, be sure to cite only those cases where you were right (as I did above). In the cases that you were wrong, if enough alleged geniuses were also wrong, nobody could have seen it coming.
Be sure to use lots of charts, graphs, statistics and quotes to back up your predictions and opinions. They don't have to be terribly pertinent. They just have to convince the reader that you know much more than they do about the subject and they shouldn't question your conclusions.
Follow these simple guidelines and you'll be well on your way to being a market guru. Here's one to get you started. Feel free to use it. "The market has established a base at around 7900. If it breaks through that support level, it could go a lot lower. On the upside, there is resistance at the 9,000 level. If it breaks through that resistance we could see a nice rally. Until we see capitulation one way or the other, we'll be stuck in a trading range between 7900 and 9000" Note, I really didn't give you any new information, but it kinda sounded smart, right? If you really want to put a shine on your new status, wear expensive suits all the time and pay meticulous attention to your hair.
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