However, we have to be careful who we are listening to, as the narrative presented may only serve to feed an ego or position. It’s the age-old game of making sure the curve fits the data to represent a specific point of view, trend or outcome. A bull will view data a certain way, while a bear will look at it from the opposite viewpoint.
So how do you know what to listen to?
3 stock market predictions to ignore
1 – Market forecasts that aren’t plausible
The business media is notorious for shining a very bright spotlight on outlandish predictions or market forecasts. After all, it’s about the ratings game. If everyone tunes in to listen to some “expert” talking head, that person’s narrative will fit the script.
If something you hear on TV sounds crazy, do your homework. What are the charts and technicals telling you?
2 – “Markets in turmoil” specials
When markets are on the ropes and investors seem in dire need of help, CNBC will often trot out a “markets in turmoil” special. This will boost eyeballs late on a Friday evening and scare everyone into watching the program on Sunday night before the Monday open (especially if futures are getting slammed).
Just two weeks ago, markets were fluttering as politics took center stage. Would a new healthcare bill cause the markets to fall? While volatility ratcheted up to a whopping 13% from 11% range (I’m being sarcastic), anxious traders got busy selling. And that turned into another great buying opportunity.
You may say hindsight is 20/20. But if you look back over the past several years, the charts clearly show how these patterns play out. The market will dip to oversold, and then buyers pick up the pieces.
3 – Predictions with no timeline
Lastly, be wary of those making stock market predictions without a timeline. Did you ever hear, “Give ’em a number or give ’em a date – but don’t give ’em both”?
Most predictions don’t come with an expiration date. Since markets go up and down, they will be right eventually. But how long will they be wrong? How much time, energy and opportunity will you waste if you let their words guide you?
(Even worse, market timers expect markets to do exactly what they want, and they even believe they have some influence over price action. This is a topic for another time, though.)
The markets will never lie
Markets don’t lie or make you wait. As I said above, you’ll find answers in the charts and technicals, like price action and volume. Use the time-tested tools of technical analysis, rather than the words of a biased pundit, as your guide.
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