The Market’s Powers of Prophecy

Stocks don’t react to news, Cramer told viewers on Wednesday, they anticipate it. So the Dow’s seesaw-like action today is a bullish sign of things to come.

A morning rally sparked by strong new-home sales, better-than-expected retail sales and great durable-goods orders gave way to sell-off that brought the Dow down 110 points. But as a show of strength, the index snapped back to end the day up 90 points. That kind of action offers investors two important tells: 1. the market is showing resilience after months of showing none; and 2. Wall Street is confident about the future, of both the economy and stocks.

But who says the market’s right? Can it be trusted? Well, just look at past predictions. The market peaked on Aug. 11, 2008. If we assume that Wall Street’s always looking forward, that date holds immense significance. Almost exactly one month later, Lehman Brothers went under. Soon after followed problems at AIG and Merrill Lynch. Even skeptics would have to agree that’s some uncanny foresight.

Also, consider the market’s bottom three weeks ago. Stock movements seemed to reflect a belief in the housing bottom, as well as one in manufacturing, bank profitability and the previously mentioned turn in durable goods. Maybe most importantly, though, the market shrugged off the possibility of another Great Depression, while at the same time pointed to a coming recovery.

Cramer likened today’s sell-off to Joe DiMaggio losing his 56-game hitting streak back in 1941. Sure, Joltin’ Joe registered a goose egg for game 57, but he was still Joe DiMaggio. The hits kept on coming, so to speak, even after that run was over. The market is no different. Pullbacks or not, we haven’t even come close to losing the near 500 points we earned on Monday. Nor should we, if today’s resilience is any indication.

So start buying whenever the profit-takers sell, Cramer said. We may not always go higher in a straight line, but we will go higher. At least that’s what the market’s saying.

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