*** PREDICTION for the Next Trading Day:
For Monday we say: "A bounce is likely for Monday, despite a new negative Market Timing Indicator (MTI) value (it is now at -0.3528), and this will be even more likely if no terrorist strike occurs. We believe that Friday's selloff was unjustified, but of course the market by definition is always 'right'. Our long-term (mutual fund) signals remain in the BUY (hold) state, but naturally our current Market Color Code is RED (Danger). Our current market assessment (BNB Indicator) is 'Bearish', but our BUY value for our long-term indicators helps us believe that the market has some underlying support and is not about to tank. We expect that the market will at least 'hold' on Monday, but has the potential for significant gains".
*** Scoring of Previous PREDICTION:
For Friday we had said: "Upward movement is likely on Friday. Yes, the Market Timing Indicator (MTI) has now dropped to just below the neutral value, but at 0.9319 it remains quite decent. Yes, our GREEN Market Color Code has now weakened to BLUE, our relatively safe color, and our market assessment (BNB indicator) is once again 'slightly Bearish', but everything else suggests some market strength that should lift equities at least modestly on Friday. Our long-term (mutual fund) signals remain in the BUY state, of course."
How did we do? The Forecast for Friday was certainly off -- partly because of renewed concerns about Europe, and also perhaps because of concerns about terrorist attacks on 9/11. Whatever the reason, our Forecast missed the mark. In subsequent analysis we were able to nudge our models a bit to the extent that they would have produced a Cash signal for Friday (at least for IWM), but the back-testing support for this is rather marginal and thus further back-testing may automatically eliminate this 'enhancement' because of lack of effectiveness. In no way could we have generated any kind of shorting signal for Friday; it just wasn't inherently a shorting-type day.
*** 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)