There is hardly a person who does not want to know what the future holds. In the financial markets, predictions are not hard to find because everyone has an opinion. In summary form, this is what constitutes total market supply and demand. Finding consistently accurate opinions and predictions is also an object of all market participants whose purpose is to be ahead of the crowd for the possible increased probability of profits.
Technical and fundamental analysis is an attempt to measure crowd behavior in this setting and predict its results.
Some Recent Predictions:
- Rumor has it in the predictive linguistic model space area, November 14th begins a tipping point into financial destruction and general mayhem. Also, a time wave model for 2010 indicates a dramatic tipping point occurring on November 14th that lasts until January 18, 2011.
- In 1996, a famous psychic predicted that war would erupt in November 2010 and end in October 2014. By 2016, Europe will be almost empty.
- This past Thursday, a television personality indicated “13-Days till the financial collapse, 15-days to a new world economic order", if China does not buy our debt at some point.
- Of course, the Mayan calendar prediction for 2012 is already well known. Unfortunately, the Mayans overlooked the date of their own demise so their reliability is in question. However, other worldwide predictions also suggest assorted cosmic and earthly disasters for this period.
- Volcanoes are erupting in Indonesia and rumblings have also been detected at 21 other volcanoes in the region increasing fears of a chain reaction of blowups and eruptions.
- Another soothsayer predicts the Dow Jones will get to 38,000 in the next 5 years. Something does not quite compute given the prior predictions above.
Please take your pick of which disaster/good news you want from the menu above.
For my part, tomorrow on this planet, I predict the sun will come up in the east, birds will chirp, and yawns will occur with a probability bordering on certainty.
The Math is Quite Simple:
Probability theory is a part of mathematics that deals with the analysis of random phenomena including their variables and assigning a value to each possible outcome. The object, of course, is to predict future results based on the observed statistical patterns.
Financial probability predictions, however, are more accurate and reliable if the facts are complete and transparent. This is what we know. In our country, it is abundantly clear to those who can count, that liabilities exceed assets, expenses exceed income and the living within our means is not observed. These financial observations cut through any and all political affiliations. The math is quite simple and relevant currently.
I predict bankruptcy, devaluation or default will occur with a 100% probability at some point if these deficiency trends continue. The variables affecting any of these outcomes are still unclear. We do know that gold, silver and commodities, however, will increase by order of magnitude and sum that is directly related to the total amount of the increasing money supply and its inflationary effects. All else is subject to opinion, discussion and watchful waiting.
While we protect ourselves against the oncoming financial train wreck, let’s see how the XAU and S&P500 are doing on a weekly basis.
XAU Weekly:
Here at Market Pendulum, our goal is to add to our premiere long term positions in any personal or model portfolio when low risk probability entry points occur as defined by our leading metrics, the Trend Directional Indicator (TDI) and Gravity Center (GC) indicator. We primarily use the weekly indicators for potentially larger gains while keeping an eye on the daily and monthly. For additional information on these indicators, click here.
Weekly XAU index Trend Directional Chart
Recently, the XAU chart price above has been in a strong trend for 10 of the past 12 weeks. The Trend Directional Indicator (TDI) has been in an uptrend since mid August. The SRA cycle indicator, overlaid on the chart, is rapidly turning down. In addition, the price is some distance from the indicators so a significant short term retracement to those trend lines might be expected shortly. The Gravity Center chart (not shown) confirms the analysis.
S&P500 Weekly:
Weekly S&P500 index Trend Directional Chart
The S&P500 chart above shows the index has been up 9 of the last 10 weeks on a weekly basis. In our opinion, simple probabilities suggest it is time to take some money off the table.
Summary:
Seasonally, we are in the strongest part of the investment year. The weekly XAU and S&P500 trend lines are positive but prices are some distance from those trend lines. Both of these indexes have been up for a vast majority of recent weeks. The probabilities suggest an immediate short term retracement with caution currently and clearly indicated. However, the overall longer term trend for gold, silver, commodities and the S&P500 is up with a probability bordering on certainty.
