As a former daily newspaperman, I tend to romanticize newspaper movies. The epitome of the genre is His Girl Friday, a 1940 screwball comedy starring Cary Grant and Rosalind Russell. They play fast-talking, wisecracking reporters who will do anything to get a story. It’s based on the stage play The Front Page.

Alarmist headlines have been driving stock market behavior lately. Most people move in groups. They typically buy after prices have already risen and sell after prices have already fallen. Hence the power of headlines.

This year so far has been nerve-wracking. Amid hotter inflation, a tightening Federal Reserve, and a persistent pandemic, it seems that the slightest whiff of bad news can send stocks reeling.

The main culprit for sharp declines in the stock market this week has been escalating tensions in Ukraine. The “breaking news” from overseas is replete with images of rolling tanks, massing troops, and worried-looking diplomats.

On Thursday, the main U.S. stock market indices plunged as follows: the Dow Jones Industrial Average -1.78%; the S&P 500 -2.12%; the NASDAQ -2.88%; and the Russell 2000 -2.46%. Global equity indices swooned as well. The CBOE Volatility Index (VIX), aka fear index, spiked more than 15%.

In early trading Friday, U.S. and international indices were rebounding as diplomatic talks resumed. And so the roller-coaster between hope and fear continues.

You never know where a “black swan” will originate. By their definition, black swans are surprises. In addition to Eastern Europe, the Middle East is back in the news.

A tweet posted Wednesday by Iran’s main negotiator in a nuclear deal between that country and the West claimed that an agreement was near at hand, sending oil prices plummeting on Thursday (see tweet):

Analysts estimate that a successful agreement to curb Iran’s nuclear development and thereby lift sanctions could add 500,000 barrels per day of crude oil to global markets between April and May. If talks collapse, oil could soar past $100 per barrel. Energy markets are on edge.

Amid all of this international drama, what should you do now? Take a deep breath and, until the geopolitical dust clears, refrain from making significant moves. We’ll likely see continued choppy action, with headlines crushing stocks followed by bargain hunters buying on dips.

Three contrarian indicators…

Learn to recognize the extremes of crowd behavior. Here are three top contrarian indicators that you should watch:

• The mainstream press is repeating the same talking points about the same trend, ad nauseam.
  

The talking heads on media venues such as CNBC often aren’t financial or geopolitical experts; typically they’re generalists and performers who glibly encapsulate the common consensus. For example, if a neatly coiffed pundit is warning about the imminent dangers of XYZ, it probably means that the dangers of XYZ have already reached a peak and these fears are now overblown.

• The mood of investors is persistently gloomy.

If the stock market is bearish and everyone is regarding stocks the way Superman regards Kryptonite, a new bull run may be imminent. When investors are unanimously gloomy, prices can only go up.

• The stock market is on a dizzying upward trajectory, fueled by euphoria.

When everyone and his brother is buying stocks and dishing out hot stock tips, it’s a clear sign that a top is near. To me, those clever (and hugely expensive) cryptocurrency ads during Super Bowl LVI indicated froth in not just the crypto realm but also the broader market.

Investors usually buy when they anticipate the market will rise; they sell when they anticipate the market will fall. But if everyone is expecting prices to go up, odds are that everyone who intends to buy already has bought. So, who’s left to bid prices up?

We’re living in tumultuous times, but keep this statistic in mind: since its lows during the worst of the coronavirus pandemic in March 2020, the S&P 500 index has roughly doubled in value.

Generally speaking, if you consistently buy during times of unreasoning fear, and sell during times of euphoric greed, you’ll do well.

PS: As I’ve written in previous articles, you need gold in your portfolio as a hedge against inflation and geopolitical uncertainty. Surprisingly, the price of the yellow metal has remained essentially flat in recent months, which means it’s poised for a breakout.

Our team has pinpointed a small-cap gold mining stock that’s on the cusp of exponential gains. For details on this under-the-radar gold play, click here.

John Persinos is the editorial director of Investing Daily.

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