Within the last several weeks the Federal Reserve announced its long range goals for the economy and the stock market rallied.

But then, several days later, the Middle East ignited once more, sending markets sharply lower.

The Feds policies quite rightly inform stock valuations, because the Fed directly influences interest rates. When rates rise, investors have the option of moving their money to bonds, to CDs, and to other interest bearing vehicles, and out of equities.

But what does the Middle East have to do with the value of Altria, parent company of Phillip Morris, maker of Marlboro cigarettes, and majority owner of Kraft?

Altria, along with most other big stocks dipped when investors heard about Lebanon. With world tensions rising, youd think people would smoke more and Altria would spike on such news.

This example shows that markets overreact to events.

You can take advantage of this fact through diligent observation and patience because bad news is cyclical. There is regularity to it, despite its erratic appearance.

Before 9/11, for example, there was a period of unusual calm, an absence of bad news, especially for the United States. If you live in the Midwest you know that there is an eerie calm before storms, and you can take your cue from it, and seek shelter.

Recently, a stalemate was preventing progress in the Mideast, and pressures were building. The sensitive investor could have predicted there would be an aggressive change in the status quo.

Moreover, the Group of Eight conference was convening in St. Petersberg, and this event is usually accompanied by tensions and protests, with various factions positioning off of it.

Over the last few days the Dow Jones Industrial Average has rallied, probably in the belief that the Mideast conflict is stabilizing, will last no more than a few more weeks, and that radical factions will lose credibility and clout when the dust settles.

How far away are we before: (1) That picture is sullied with a significant change; or (2) Another crisis grabs our attention?

My guess is there are some surprises yet to come out of the Mideast that will roil markets, and that the rebound were experiencing today will be seen as a fools rally within a month or two.