"In the short run," St. Graham said, "the market is a voting machine. In the long run it is a weighing machine." The voting is based on current sentiment, but what the market weighs in the long run is earnings. The market tries to forecast future income streams. And it gets it wrong as often as it gets it right.

Let's look at this yet another way. This is an important concept, and it should be a component of your economic BS detector. The CNBC host talked in breathless terms about the importance of the 50-day average moving above the 200-day average. It means nothing until it means something, and we won't know what that something is for some time.

Last week the 50-day average moved below the 200-day average. The analysts at Bespoke Investment Group noted:

"Going back to 1928, this is the twenty-fifth time that the S&P 500 has declined through both of these levels on the same day. We have provided a table showing each of these occurrences as well as the index's returns going forward. Based on those prior instances, the S&P 500's returns going forward have been notably negative. While the S&P 500 has averaged positive returns over the next week, average returns have been negative over the next month, 3 months, and 6 months."

But 33% of the time, the markets were up 6 months later, often by quite a bit. Sometimes they were down quite a bit, but only slightly on average. This means that, as a forward-looking indicator, it's interesting -- but not anything I'd put my money on!

Before major market moves down, the 50-day moving average will always move below the 200-day moving average. And the reverse is also true. It's not a sign. It's just what statistically must happen. Sometimes they reverse themselves, and sometimes they don't. We have no way of knowing whether the 2 moves (both up and down) last week will be bullish or bearish 6 months from now, based simply on the moving averages crossing.

You can make the data say anything you want -- but you're still just guessing.

Trend-Following 101

I spend a lot of time analyzing trend-following money managers of one kind or another. Basically, they look at data and try to spot trends and then invest in them. A trader who's right 70% of the time is amazing and very rare. Typically, successful traders are right 50% of the time. But they have sharp risk controls that cut their losing trades and let their winning trades "ride." Being right 50% of the time can be profitable over time -- it's harder than it looks!