Thursday, October 17, 2013

All time highs

Original Post: The market ended up "selling off" on the budget resolution news but it was short lived as it reversed and closed at an all time high as I was anticipating last week if we had a resolution. I will add more later (on the market action today and my take on the longer term count) but you can see my attempt at labeling a stand alone W3. You won't see these sort of labels anywhere else as this is my own creation and not a standard wave principle concept.

I am btw regretting not holding on to my Google shares.. arghh..

So now that the high was taken out we can confirm the wave to 1627 as a corrective wave and as such I can start projecting targets for the current bullish wave. The one thing that makes this wave tricky is the fact that I am counting it as a 5th wave so it has the potential to end up in an Ending Diagonal or Rising Wedge. But if I were to treat it as a normal Wave 3 we are looking at 1868-1888 for the end of this wave or maybe even the entire 5th wave including the Wave 5. We'll just adjust as we go along but as of now this rally looks like it's just getting started.

Also, I posted a longer term chart I last updated in May since I posted about the different theories on market predictions yesterday. On this chart note that I posted preliminary targets for W3, W4 and W5 on that date prior to the market topping in May. Going by Eugene Fama's theory, the business of predicting markets is as good as a coin toss but if we break down the odds of this chart being right, odds would favor Shiller's theory on the market's having a psychological element. So I did an statistical calculation based on a few permutations to figure out the odds and this is what I found.

Odds of getting the turning points correct: 1/8
Odds of getting price direction correct: 1/8
Odds of getting the first two turning prices correct within a 2 % margin : 1/25 (this one is subjective and based on experience)
Odds of this chart being correct today relative to when it was posted vs a random chart: 1/1600

That's 1 in 1,600 and I am not including other permutations such as the time frame element nor the previous periods where right predictions were made. The third permutation is subjective as I am basing that on experience but I think that would be about right. So taking this into account, one could argue that markets CAN be predicted with some level of accuracy using the tools I have been utilizing. Obviously, this could have just been random luck so the point to this whole blog is to find out over the long term whether or not these technical analysis tools that I am using provide an advantage over the buy and hold strategy. I'd like to believe there is an advantage but I won't be sure until I see returns during 3-5 year term in bull and bear markets. If you have ever wondered why I am so dedicated to analyzing the market, this is the reason. I want to know for my own sake whether or not I am better off actively managing my money or leaving it alone in an index fund. If you are good at statistics please feel free to provide your input on my calculation.

Last but not least, since we're talking about the business of predictions. Unlike wave theory where one has to call the ups and downs of the markets, there are the likes of Marc Faber who just couple of days ago was speculating on Apple going bankrupt.. as a doomer, he will eventually be right in something bad happening but when you make the same prediction every single day then it's really no better than a broken clock being right.

My favorite Marc Faber prediction:

Short Term Trend = Bullish
Medium Term Trend = Bullish
Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

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