An Article of Faith

Everyone has this idea that stock prices are “telling us something” about something else, like the economy, or the price of another kind of stock. Stock prices don’t “say” anything about anything. Except themselves of course. They make patterns, and from those patterns we can deduce what they are likely to do beyond this point.

But it’s really dangerous to make these assumptions beyond that. Just because one group moves, that does not imply anything about what another group will do. The correlations are really haphazard. It’s amazing that conventional wisdom in this regard is so ingrained. People actually think that the stock “knows something.”

It’s ridiculous. It’s religious faith with no basis in fact. People believe it because they choose to. But it’s absolute nonsense. The only thing stock prices tell us is how much extra liquidity is in the system, or how scarce liquidity is. That ties in with psychology. They feed on each other. Psychology weakens when liquidity dries up, which tends to make psychology even weaker. But there will be no real turn in the broad market unless liquidity is expanding. Certain groups that are in favor can move, but a lack of liquidity will limit the moves to those groups. Groups which are moving tend to get all the love.

None of which is to say that I am or am not bullish at the moment. For that, people will have to read the Wall Street Examiner Professional Edition. If you count the number of longs and the number of shorts among the chart picks, that should tell you all you need to know. And the total number of picks will tell you how strong my convictions are. A scale of 0 to 10 would fit nicely based on the number of picks, which rarely reaches 10.

Try the Professional Edition risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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