So you’re looking for stock market predictions so you’ll know how to treat your money over the short term.
I hear you – and I sympathize. But you’re looking at this the wrong way.
The Stock Market is Not Like Weather
You all know and love the common 7-day weather forecast (or the 30 day which is now coming into common usage). And yes, it would be nice if there was a similar service which told you how the stock market would act over the next few days. And yes, it might exist – but the person who invented it isn’t going to share it with you.
The stock market is an interesting animal – any strategy that can be easily implemented can also be easily arbitraged away. While some market participants insist that the market is completely efficient, and cannot be beat once accounting for transaction fees or taxes… it’s more likely that once an easy strategy is popularized (Price to Sales? Dogs of the Dow?) any edge quickly disappears. The only strategies which can continue to beat must remain difficult to grasp or hard to implement for various reasons.
A Better Analogy
A better analogy? Climate.
Climate forecasting, as you know, is an insanely controversial topic. While most observers would agree that the earth is gradually warming over time (where did the glaciers in Wyoming go?), there is disagreement on the proportion of that warming which is driven by human activity versus natural cyclical changes, and, furthermore, if the warming will continue. Suffice to say, almost all the models which have attempted to predict future temperature increases have been embarrassingly inaccurate.
The stock market is equally controversial. In one camp you’ve got the Efficient Market Hypothesis folks who believe that your investment performance can never outstrip market performance (after adding in a factor called “risk”), while in the other you’ve got people who believe that, yes, individual investors with sufficient skill can outperform.
Since the two fields have just as much ugliness, let’s extend the analogy: weather on one day is not climate just like a down day in stocks doesn’t mean you’re in a bear market. A hurricane in New Jersey or a 83 degree December day in Silicon Valley or a polar vortex is just one data-point in a larger set. Recent volatility in American stocks? Same deal.
In it To Win It… And Marathons and Sprints, etc.
On a given stock market day, the most likely thing to happen is “whatever happened last”. Stock markets correlate with trailing returns to such a degree that EMH proponents will make absurd arguments like “it would take 60-80 years to even know if someone outperformed due to sample size”. Well, it’s true, sure – but my mind is in the “sufficient skill can outperform camp” (even if the majority of my money isn’t in individual stocks). My predictions? 5-10 years out, at a minimum.
When you’re looking at fundamentals and trying to predict movements over the next ten years… day to day movements are basically useless. Months? Keep going. Years? Well, you’re getting closer, but it’s still just noise.
I suggest that you take a similarly long view, and stop trying to predict stocks on a day to day basis. If you can’t do that, at least stop listening to other people predict the next few days in the market. Unless, you know, you can reason faster than an algorithm.
Do you think you can beat the stock market? Do you think you can do it on a daily or weekly basis? At which speed does your brain operate? A few gigahertz?