Stock Market: My Secret Weapon
in Predicting its Direction

Michael's secret weapon for predicting the direction of the stock market.Okay, it’s March of 2011 and I see stock advisors in general are getting very bullish on the stock market. I start to predict a decline for stock prices. I even make an audio/video presentation stating that I predict stocks will start to collapse on May 2, 2011.

From May 2 to June 15, 2011, the Dow Jones Industrial Average falls from 12,876 to 11,875—a drop of 1,000 points—a mini crash. I’m sure plenty of short-sellers made plenty of money during this period.

But by June 15, the majority of stock advisors that were bullish on May 2 are now solidly bearish on stocks. My customer service people tell me our own subscribers are calling in panicking, not knowing what to do as stock prices fall.

In the middle of June, I start writing in Profit Confidential that stocks have become severely oversold and are due to bounce. Actually, exactly on June 15, 2011, the headline for my lead story in Profit Confidential was “Stock Market Bounce Imminent as Bullish Sentiment Collapses.”

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From June 15 to today, the Dow Jones has run up 726 points, or 6.1%.

I’m not patting myself on the back. Far from it! As soon as an analyst starts thinking he or she is really good, they get into trouble.

My point today is that watching the consensus, seeing what the great majority of stock advisors believe will happen, and then going against their view has served me very well over the past 25 years. It’s actually my secret weapon in predicting the direction of stock prices…bet against the herd and you’ll find you’ll usually win.

Michael’s Personal Notes:

The truth comes out…

I’m talking about the recently released data from the Fed that shows Goldman Sachs & Co. was indebted to the Fed by $34.5 billion on December 31, 2008.

The new data show the banks the Fed lent money to in 2008 under a lending program. Of the 19 banks that received loans, all of them paid the money back.

Goldman is the most profitable bank on Wall Street. At the time of the credit crisis, billions were made available to this bank at interest rates that were very low. This is the same bank that was later sued by the SEC for misleading investors about subprime mortgage products; a lawsuit that was settled for about $500 million.

Hence, one arm of the government lends Goldman money at very cheap interest rates, while another arm of the government sues Goldman for what I see as alleged mortgage-backed securities fraud. Meanwhile, Goldman made billions during the housing and mortgage boom years of 2003 to 2006.

Here’s my question: given the way Goldman operates (it rarely has a trade on which it does not make money) and how far its tentacles reach on Wall Street, in Washington and in the Fed, how can it not continuously make money?

Where the Market Stands; Where it’s Headed:

Stocks continued to climb the proverbial “wall of worry” yesterday. This morning, the Dow Jones Industrial Average sits a pretty 1,049 points higher than it started 2011—up nine percent so far for 2011.

As we entered 2011, I wrote that there was no doubt in my mind that 2011 would not be a repeat of the strong stock market performances of either 2009 or 2010. The bear market rally has entered its third year; it’s getting tired. But it has yet to finish its business…the business of luring investors back into stocks.

It was only early this year that retail investors really started getting back into stocks and equity funds. I have patience and I suggest you have the same patience, and we should not be premature in leaving the rally. The bear market rally that started in March of 2009 has more life left in it.

What He Said:

“If I had to pick one stock exchange that would rank as the best performer of 2007, it would be the TSX (Canada’s equivalent of the NYSE). Interest rates in Canadaremain very low and they are not expected to rise anytime soon. Americans looking to diversify their portfolios, both as a hedge against the U.S. dollar and a play on gold bullion’s price rise, should consider the TSX. Most brokers in the U.S.can buy stock on this exchange.” Michael Lombardi in PROFIT CONFIDENTIAL, February 8, 2007. The TSX was one of the top-performing stock markets in 2007, up just under 20% for the year.