Your Brain Can’t Handle Green on the Screen

We have said a good deal in this space about the futility of trying to time short-term market moves (see e.g., this, this and this). No one has demonstrated the ability to do this consistently over time. While it is possible to avoid the very largest of collapses over long periods of time using a simply trend-following approach (see Meb Faber’s “A Quantitative Approach to Tactical Asset Allocation“), the shorter the time horizon, the more difficult this becomes.

Thus, forecasting near-term market moves is an exercise in futility.

I bring this up because after a pullback of less than 10 percent in September and October, markets have powered ahead. Despite all of the crash warnings, the Standard & Poor’s 500 Index has managed an 11 percent gain this year. Yes, I know, a 1987-like crash, is imminent; I have been hearing that for five years. Like the boy who cried wolf, should a crash finally occur — and that is always a possibility — you won’t get credit for it.

In trading, early equals wrong.

Continues here

 

 

 

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