Have you ever wondered why a stock rose after reporting its worst earnings ever? Have you ever seen a stock drop like a rock after reporting blockbuster earnings? I’m sure the answer to both questions is a simple yes. This happens endlessly in the market on a daily basis. By now you may be wondering why this happens? The answer is that the market always knows and is never wrong. Recently, Apple Computer has been under pressure and the stock price was falling daily. The rumor on Wall Street was that CEO Steve Jobs was very ill and that was the reason for the decline. Later, Steve Jobs issued a statement saying that he had a hormonal imbalance condition that could be easily treated and cured shortly. Following that press release, Apple Computer’s stock price rose further for a day. The next day, AAPL began to decline again. What did the market perceive about AAPL if CEO Steve Jobs was going to be okay? How did the market know a week later that Steve Jobs would take medical leave and make a statement that his condition was worse than originally stated? Perhaps it is the insiders who know and the news reaches the streets. I personally don’t know the absolute answer to this, however I know the market knows it and it shows on the charts.

Have you ever noticed that stocks always seem to get multiple ups and downs at all time highs and lows? It seems that brokerage firms are trying to compete with each other with a higher or lower upgrade or downgrade. I remember when Google was trading at $700 a share and brokerage firms would bump into each other updating stocks to $1,000 or $2,000 a share. Are they busting it to drop it? Maybe they really believe it’s going at that price and just don’t understand the laws of supply and demand. Countless times I have seen stocks downgraded to 52-week lows. Then, shortly after the downgrade, the stock rebounds from the lows and is back in favor. Are the institutions knocking them down to buy them, which is merchant parlance for buying a markdown? In 2005, I recall that Frontier Oil was demoted by various companies to a bare minimum. That low turned out to be a wonderful buying opportunity as the stock doubled in a few months.

In June 2005, the cover of Time magazine featured a cartoon of a man hugging and kissing his house. At the time, the housing boom was in full swing and everyone with a pulse wanted to get into the home remodeling business. As we all know by now, this was nothing more than a game of musical chairs and it would eventually come to an end. As it turned out, this would be the start of the worst financial crisis since the Great Depression of 1929.

It still amazes me to this day that most people have very little interest in understanding the mechanics of the markets. So few in the public understand the sentiment of the market. I should really say that very few, even in the financial world, understand market sentiment and market mechanics. Just take a look at Bear Stearns, Lehman Brothers, Merrill Lynch, Wachovia, Washington Mutual, Indy Mac Bank, Countrywide Financial, Citi Bank, Goldman Sachs, and many others.

Most people have a retirement account and have lost 10 years of savings in one year and many have lost even more. Take the time to learn the mechanics of the market. Perhaps a simple magazine cover could have saved many from losing a good chunk of their net worth.