The stock market has been in an up trend for more than a year. Almost everyone is feeling good and many believe we are back in the old bull market with the previous high of the Dow Jones Industrial Average just about to be broken.
This could be the case, but what if what we are seeing is all glitter and only has sparkle with no value whatsoever. Any one who tells you he knows is either a liar or a fool. Only the market itself will tell what it is doing and very few take the time to learn its language.
The most important thing about the stock market is the major trend. For the past year it has been up and during that time you should have owned equities ? stocks and mutual funds. Some time in the future it will turn down again (it always does despite what you broker says) and that is when you should sell your equities and keep your money in a money market account. You won't be making much, but it takes a lot more effort to make money than it does to keep from losing it.
Brokers will tell you there is no way you can determine the direction of the market. They are either lying or stupid. It is not that obscure. To mine for gold in the stock market I recommend you look at the Investors Business Daily Mutual Fund Index. Notice that the Index price is currently above the 200-day Moving Average. That penetration occurred in April 2003 and had stayed that way until May of 2004 when it broke down.
When that happened you sold everything and went to cash. It went back up through that 200 line shortly after so you should have bought back into equities. Now you are fully invested again maybe in other equities that are performing better than those you had before. Is this a new gold mine or fool's gold? You don't know yet, but you will learn that the trend is your friend.
If you did sell out your previous stocks or mutual funds you should have looked to see where you want to buy again. There is something called sector rotation that will definitely increase the return on your money. At times the technical stocks and funds do better than the real estate group or the banking group. You should be where the strongest funds are and these you can find with a search on the Internet.
Don't be a fool and try to ride out a weak stock or group. Just a few years ago AT&T was $100 per share. Today it is $15. So much for the widows and orphans; they have lost their gold.
What might seem to be a sure thing can turn into a financial disaster - a fool and his gold will soon be parted. Never take a big loss. Listen to the market and learn to stay with the trend.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
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