*** PREDICTION for the Next Trading Day:
For Thursday we say: "That was painful. As for tomorrow, the Market Timing Indicator has (unsurprisingly) dipped to just below the neutral line and is now at 0.9367. This does not yet suggest any dramatic weakening that could propel the market into a dive, but it is enough to push the majority of our signals into the Cash state. We now have a YELLOW (Caution) Market Color Code and our expectation is that the market will 'hold' on Thursday near current valuations, thus closing flat or mixed. Still, the downside risk is obviously greater than it has been, and this is why our signals are opting for Cash. Our current feeling is that the market will prove to be resilient, and that it will rapidly re-stabilize".
*** Scoring of Previous PREDICTION:
For Wednesday we had said: "The market 'should' move higher once again. This is despite a disagreement between our Market Timing Indicator (MTI), which has moved to a higher value (1.5658), and some of our other indicators that have become a bit more pessimistic. In any event, we should be able to eke out at least one more day of gains. Our BLUE ('relatively' safe) Market Color Code continues, and this suggests that the market remains fairly stable (if it should dip in response to bad news, losses should remain quite moderate). Techs should continue to outperform".
How did we do? The Forecast for Wednesday was clearly a bad one, although we had seen some portents of potential trouble in the fact that we had disagreements between key indicators. Nonetheless, we did not see the selloff coming, and it appears unlikely that there was anything in our indicators that could be used to warn of similar surprises in the future (although you can be sure that we are going to look). In any event, the market was clearly less stable than we had anticipated.
*** Note 1: The MTI can range from about -2.5 to +2.5, with a 'neutral' value of 1.0. A value of 1.0 will generally be associated with a market that is either stable (holding its valuations) or rising slowly and erratically. Values greater than 1.0 signify a 'long' market, while values substantially below 1.0 (and especially zero or negative) signify shorting situations. Although the MTI is extremely useful (especially in the construction of equity-specific models), bear in mind that it has a reaction time of several days. It is thus not sufficient to use this indicator alone for trading specific equities on a day-by-day basis.
Schulenberg 2X-Hedged IWM (^IWM2)