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How Do You Know?

Someone bounced me the following quote from a newsletter by Richard Russell who is regarded in the US as somewhat of a doyen of predictive technical analysis.

The worst kind of market is a market that goes down on good news. As I write, optimism is in the air, and the Dow is down 95 points. Dow 10,000 continues to be the great psychological barrier and my work suggests that that Dow 10,000 will be tested in the next few months. Therefore the operative word is caution. Keep the word caution in you conscious unconscious mind.

The person who bounced me the quote has been looking for an excuse to short the Dow for some months and refuses to accept that the market has put on almost 20% in the past few months. Whilst, this is a case of trying to trade what you want to see my quibble is with the damned use of prediction.

How does someone know what the market will do in the future when all you know is what it is doing now. I am constantly surprised that people who make predictions are listened to given that at present it is impossible to predict what complex systems are doing.

For the record here is a chart of the Dow at present.

From this chart I can deduce the following –

1. The market has been in an uptrend.

2. Price is currently at the level of the previous high.

3. Last night was an up night.

Anything other than that is a guess.

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Comments

  1. Along the same lines of your earlier post highlighting the inaccuracy of Economists predictions, these guys can continue to make outlandish predictions because they are never held accountable for them. There is zero downside, large potential upside. They can make 100 dud predictions which everyone subsequently forgets but then, thru sheer weight of numbers, fluke an accurate one and suddenly the media marks them as the guy who picked event x!

    About time a prediction register was set up. If someone wants to make a prediction, they can prove their conviction putting it on the register along with timeframes for later scrutiny. I’ll bet the win/loss ratios won’t look too flash for that system 😉

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