Blog / Weekly prediction – related considerations.
Weekly prediction – related considerations.
Additional details to the Prediction Data Puzzle.
For market participants, playing a bit longer timeframe (Investors, Swing traders) the Weekly predictions might play a more important role in the decision making process, than the Daily predictions.
Some of the characteristics of the Weekly Predictions:
- As for Daily predictions it is true, that the probable movement of the market will be in the predicted direction, at least at the beginning of the next week. The movement in the predicted direction might start the first day of the week or later but the highest the probability is for the first 1 – 2 days.
- We might use Hourly, Daily or Weekly charts to estimate the potential extent of a move in the predicted direction, along with classical technical analysis measures, similar to estimates of potential moves for predicted Daily directions.
- The weekly predictor filters out more noise from the markets and for this reason a bit more reliable and have a bit higher probability of being successful. Win probability varies for the different indices, but usually 5 – 15% higher than the win probability of the Daily predictions.
- It is interesting that both for the Daily predictions and for the Weekly predictions we have Internal divergences for example between the NASDAQ and the S&P500 predictions about 16 – 17% of the time, so out of 100 Daily predictions the NASDAQ prediction is different then the S&P500 prediction 17% or 17 times and similarly for 100 weekly predictions we got that NASDAQ weekly predictions point to different direction than the S&P500 weekly predictions 16% of the time or 16 weeks. (This statistics is calculated from the April. 2006 – Dec. 2010 period for the weekly predictions and Jan. 2007 – Dec 2010 period for the Daily predictions.)
- It is also True for the Weekly predictions, that the successful predictions or actual Win probability is better for Longs in a Bull market or prolonged Uptrend and Win probability is better for shorts in a Bear market period or prologed Downtrend.
To help you better evaluate the performance and behavior or the weekly predictors, we created new sets of weekly prediction charts, based on the Daily historical data. Those charts can be downloaded from the Downloads section of our WEB site, and printed out for further analysis.
As for the Daily predictions we researched the most probable reasons, a specific weekly prediction might Fail. We found, that the three most often occurring reason is the following:
- Bearish predictions in a strong Uptrend or after a Bullish trend reversal / Bullish predictions in a strong Downtrend or after a Bearish trend reversal.
- Bullish predictions at highly overbought conditions / Bearish predictions at highly oversold conditions (Both occurring in trending and range market periods.)
- Bearish prediction in a strong Uptrend at a time of a pullback below the SMA20 / Bullish prediction in a strong Downtrend after a move above SMA20. (This can be considered a special case of the first reason, which needs further attention to avoid considerable trading losses.) A lot of trend continuation players use these spots on charts for market entry.
To get some long-term view about the performance of the weekly predictions we need to download the weekly prediction history for the index of our interest and analyse the available data.
For a quick overview I created a table about the weekly predictoin win probability for the NASDAQ index for the past few years.
The table below show the prediction win probability separately for the Bullish and for the Bearish predictions:
It is very interesting in many respect.
We know that long-term prediction win probability is usually between 74 – 88% for the NASDAQ index.
But in this table we see some outlyers in both directions. For example the Win probability for Bullish predictions during 2009 for the NASDAQ was the extremely good 96%. 24 / 25 of our Bullish Weekly predictions were correct. That year was clearly above our historical range. The most probable reason is, that the FED and the government entered the market, and their objective was to push up the indices as much as possible as quickly as possible, withouth thinking much about the costs of the market manipulation long – term.
The 2010 year was by far the weakest year for the Bearish weekly predicttions. Only 63% of the predictions came out as expected. Our data suggest, that market manipulation was prevailing throughout most of the year, but this time the objective was not to push up the indices as much as possible, but only not to allow them to be pulled down by the natural market forces. This game definitelly cost much less for the manipulators, than it cost in 2009 do complete their mission.
In this environment to reap the true benefits of the weekly Bearish predictions became extremely difficult, and action definitelllly required caution and other confirmations (The most obvious is the price confirmation.) to initiate market participation as a responce for the Bearish predictions.
We have reason to belive, that playing the Bearish predictions will continue to be challenging untill the market manipulation forces present in the market.
The so-called QE2, initiated by the FED in Nov. 2010 is only part of the big picture.
You can follow the day-to-day actions of the QE2-related FED actions on the following WEB link, which details the schedule of the operations:
http://www.newyorkfed.org/markets/tot_operation_schedule.html
Similar tendecies could be noticed after analyzing the Daily Bearish predictions.
During the previous 20 – 25 years we did not have such overwhelming market manipulation, that will impact all kind of market analysis results. Obviously the many different market cycles will also be impacted. When Bearish forces not allowed to take their turn for long period of time, their impact could be much more violent at a later time, when the FED and the government run out of ammunition and get forced to leave the battlefiled. That could happen when the dollar loses the global reserve currency status, the latest, if that is about to happen.