On Market Predictions

One can find many interesting and useful sites that offer market commentary and predictions. I personally read several everyday, some of which are subscription services. In general, much of this commentary is a helpful framework for viewing the markets. I have rarely found that it is all that useful for trading purposes. Rather it gives one perspective on the possible outcomes and perhaps when and when not to press it by adding to a position or increasing profit targets.

As far as market direction is concerned, most of the commentary and predictions miss the mark, often considerably. The result for the commentators is to present an alternate interpretation that fits the current situation, but this is of questionable value to traders.

It is easier and more profitable to follow the market using tested systems based on price, volume and breadth than trying to predict the next move. It is also helpful to have a clear understanding of where you are in the 9 month cycle.

Presently, we are approaching a 9 month cycle low. By symmetry with the March 14 and August 16, 2007 lows this cycle has stretched to 10 months with a projected low on January 16, 2008. It would not be surprising to see a reversal low today given the bad news from Intel and Citigroup, but the VLA System is still on a sell so there is no action to take on an intermediate term basis. One might consider taking a countertrend trade into the Fed meeting.

A review of past bear market 9 month cycles shows that after a 9 month low in a bear market, the markets may only bounce for 2 to 4 weeks. There is no reason to expect a protracted rally. However, if we get a long signal on the system, it must be respected.

I hope the reader can see that by following the market using a tested system, a great deal of the anxiety in trading is removed ( and also the euphoria ) as there is no longer the need to predict the markets' next movement in order to trade successfully.