The Market Tends to Fool the Majority

In my weekend blog post, I mentioned 3 possible scenarios: 1) The market could continue to be resilient and scream higher 2) The market could correct before heading higher or 3) We could possibly see an overall top. I thought we would see scenario #2. After my post, I received several emails in which everyone said we would see scenario #2 or #3. VERY FEW people thought to buy the open on Monday and that we would finish strong. As Jesse Livermore said: “The stock market is never obvious. It is designed to fool most of the people most of the time.”

First, I have to give credit to Jim Gobetz (@aiki14 on Twitter). In his Pre-Market Take on StockTwits TV Monday morning, he said to buy the open and that we would finish positive on the day. You know why that scenario made complete sense? Because as Jim said: “It was not the real popular opinion.” In fact, he said he took abuse for making that call. Congrats to Jim for making the contrarian call, and ultimately the correct one!

This morning reminded me of February 18, 2010. After the close that day, the Federal Reserve surprised the markets by raising the Discount Rate. I remember tweeting that: “One possibility is that the market shakes off the rate hike news and continues to show incredible resilience.” The same thing happened to me. I got angry emails and replies telling me that the market was going to crash. The next morning, the futures were barely down and the market finished strong that day. A very similar event happened this Sunday night. After the HealthCare Bill passed, everyone expected a huge market selloff. Once again, the futures were slightly down on Monday morning and the market proved its resilience by finishing strong!

I would like to stress 2 points: Don’t fight the tape and don’t think like the majority! We’ve had several excuses to selloff over the past 3-4 weeks but the market continues to march higher. Part of this resilience is due to the masses thinking this rally is going to end any day now. I still expect higher prices over the next 3-6 weeks, as the market will most likely continue to fool the majority.

Some stocks on my watch list include: $AAPL $PCLN $CERN $GMCR $VECO $BUCY $DNDN

Follow me on Twitter @jfahmy

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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