IN 650 BC, the Babylonians predicted the weather from cloud patterns. Chinese weather prediction extends at least as far back as 300 BC, around the same time ancient Indian astronomers developed weather-prediction methods.
In New Testament times, Jesus himself referred to local weather patterns, saying, “When evening comes, you say, ‘It will be fair weather, for the sky is red,’ and in the morning, ‘Today it will be stormy, for the sky is red and overcast.”
Yet, the US National Oceanic and Atmospheric Administration says that overall, “A five-day forecast can accurately predict the weather 90 percent of the time. A seven-day forecast can accurately predict about 80 percent.”
However, after nearly 3,000 years, a 10-day or longer forecast is only right about half the time, the same 50/50 as flipping a coin. Forecasting asset and stock market prices, the future of the economy, and currency exchange rates is overall no more accurate as how much rain we are going to get in October.
But we look at all those forecasts like the cultist followers of the Pythia at the Oracle at Delphi.
I do not make forecasts for any of the above markets as no one pays me—or should—for my predictions. However, I do make money on what does happen in the future. Here is how. If it rains, the guy selling rain boots “gets rich.” If there is strong sunshine, the one who sells sunscreen makes money.
But I want to be like the company that makes money rain or shine and who does not need to predict the coming weather. That is the umbrella company with products that are useful in any weather.
In the biblical book of Leviticus, we are told: “Don’t turn to psychics to get help. You will be defiled by them.” Other meanings of “defiled” are contaminated and confused. And nothing can cost you more money than stock market analysis.
I trade the stock market almost daily to make profits, sometimes big and sometimes small. I trade the market almost daily and often take losses, but always small and “never ever never” big.
“But how can a person possibly trade the stock market without first making a prediction?”
When I first moved to Hawaii, I discovered that people living there only watch weather forecasts if there is an impending hurricane. Otherwise, if there are clouds, it means rain and if “no clouds” it’s hot sun. And that can go back and forth several times a day. Almost everyone carries an umbrella at least in the car while never trying to predict the weather.
On the stock market “clouds” can be the volume, and the lesson is “Volume Precedes Price.” If the price is at a relatively low level (based on the past few weeks or so) and there is increasing volume with flat price movement, that is “accumulation” and the price will probably go higher. Conversely, if the price is at a relative high level and there is increasing volume with flat price movement, that is “distribution” and the price will probably go lower.
If the price is at a relative “bottom” and there is a sudden spike in the amount of volume, that may be “Smart Money” buying in. A confirmation is found days or even weeks later with another jump in volume —and usually also price—when the “Friends of the Smart Money” get on board.
Some time later will be another volume spike, usually at the high, which is the “Sucker Money” or Buying Climax with “The exhaustion of demand as the last buyers enter (and the “Smart Money” gets out) the market.”
If “Volume Precedes Price” both ways, you do not need to predict the market. Just carry an umbrella for sunshine or rain.
The problem with going to fortunetellers is you then operate on the assumption that they are correct. “Your life partner will be rich,” so you try to hang around “rich” people and then miss the love of your life. Watch stock market price movement and volume and don’t waste your time trying to predict the future.
E-mail me at firstname.lastname@example.org. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.