I remember speaking to a friend of mine back in 2009 when the Dow was trading at the 8,000 level. During March 2009 the Dow actually travelled below the 7,000 mark. My friend, like many others were insistent upon the fact that the Dow was going to go even lower and we were headed for imminent market disaster.
My friend wasn't the only one was speaking about imminent market disaster there were many, many others as well. Some even predicted that the Dow was going to travel down to the 1,000 level. I can certainly understand the panic and concern as the Dow had traveled from above 14,000 in 2007 to below 7,000 in 2009. It's quite logical that people tend to take notice and scream that the sky is falling when the Dow loses roughly half of its value in less than 2 years.
I didn't share the same gloom and doom attitude as many others. In fact after hearing so many people tell me they were getting out of the market altogether I became quite enthusiastic about the potential opportunities to pick up some pretty incredible bargains. When people would ask me what I was going to do I simply told them that I was looking to buy Ford and General Motors stock, both of whom it had the wind knocked out of them during a huge market decline. Needless to say, everyone thought I was crazy except for a small few who realized the incredible opportunity that we had before us.
What happened next was particularly interesting to me. As previously stated in March 2009 the Dow had travel to the sub 7,000 level. As 2009 progressed the Dow moved steadily upward, yet I continued to hear nothing but doom and gloom. Those who would contact me who had insisted on being bearish saw every upward move in the Dow as another opportunity to sell stocks short. Their logic was that if the Dow moved upward they would make more money when the eventual catastrophic crash came about.
By the end of 2009 the Dow closed above 10,000, actually it was a little bit closer to 11,000. While there were still those insisting that the market crash was going to happen any time, bearish traders and investors commented less and less about their market predictions.
The bearish traders who contacted me continued to hold onto their belief that the market crash was just around the corner. When they asked me what I thought I was a bit surprise as they had already formed their own biased opinions of what was to come. My answer to them was simple, “What does the chart said?”, I asked. I also asked, “What is the direction of the major trend?”. The answer that they typically responded with was, “The trend of the Dow is up, but…”.
We have to always keep in mind that for whatever reason the price is the price. Holding onto a beleief that the market is about to crash simply does not move markets lower. Something for new traders and keep in mind is that hanging onto a belief or a bias “just because” is a recipe for disaster. In the end the fact of the matter is that stock charts don't lie.
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