Monday, July 9, 2007

What a difference a week makes

I've gone over this before and I'll say it again TA can tell you with 20/20 vision what has happened in the past but it can't predict the future. Take a look at the first chart. It is pretty obvious the momentum is fading fast. This rally is just about over. The MACD histograms are contracting to 0 in preparation for the coming correction...right? Well lets take a look at the second chart :0 Wow who knew the Q's would surge upward again busting out above the upper bollinger band and momentum would start to accelerate all over again. The answer of course is nobody knew because nobody has a crystal ball.

I'm going to tell you right here right now how to write a very popular blog. #1 It has to be bearish. People like to hear bad news. Don't ask me why. I have no idea why we are hardwired to stop and look at the accident on the highway I just know we all do it. #2 You need to make predictions and if they are bearish predictions even better. Here's what happens to all of us and I've been just as guilty as anyone. We have a bias so we search out a blog or website that confirms our bias. Being able to see it right in front of us makes us feel more confident that we have made the right investing decision. Someone else thinks exactly like we do so that makes it right. The next thing that happens especially if you are a novice is we look at that prediction and we immediately start calculating our profits. Here's how it works. Well if such an such says the S&P is going down to 1400 and if I buy 20 puts on the SPY then I should make $$$... yeah that sounds about right. Wait a minute though if I were to buy 100 puts since I know I'm right and such and such is an experienced investor and its very unlikely he will be wrong then I will make $$$$$ instead of $$$. Alright now we're talking. I know damn well that exact thought process has gone through every ones mind before. I know it still happens to me and when I catch myself starting to think like that I calmly walk over to the wall and beat my head against it until I get that thought the hell out of there. Let me tell you what you should be thinking. Hmm...such an such is predicting the S&P will fall to 1400... Who the hell does he think he is? Jack off, nobody can predict the market. I'll buy 1 put just in case he might get lucky and if he's wrong which he most likely will be I won't lose very much of my hard earned cash. My suggestion is you view all these predictions and claims to be able to call market turns with a high degree of accuracy for what they really are...entertainment.