What tools does an investor have to manage a portfolio when the markets range-trade, as has been the case with equities since early September?
The efficient market hypothesis tells us that market price follows a random walk and is occasionally influenced by big fundamental news stories which cause significant market ups and downs. In light of this theory, the pattern of stock price movement for the past two months should be explained by a sequence of fundamental data that was initially good -- then turned bad -- then good again -- then bad -- then good... We still have no idea what the next news should be, because according to the efficient market hypothesis, all market-moving news arrives from 'outside of the system' and cannot be known in advance. (If they were known then they would be known to everyone and thus stop being market-moving news).
We could instead turn to technical analysis and say that prices are in a 'price channel'. We could draw two parallel lines to make the picture look like this:
But how would we know that the market would form this beautiful channel beforehand? We need something to warn us about market tops and bottoms as they happen, not after the fact.
Unlike technical analysis ChaosMonitor relies on rigorous scientific methods developed to analyse complex systems such as weather and the earth's crust. The ChaosMonitor model has provided accurate signals about market trend changes throughout the past two months and identified two market top reversals in September and October (below).
Then we had a bottom extension signal in early November which warned us about current decline coming to an end (below).
Another important signal came on volatility index (below). It showed that further rise in risk aversion was becoming unsustainable.
What do we expect today? The ChaosMonitor algorithm has identified an extension point on the NASDAQ index. This means that stock markets are likely to stop rising now.
The efficient market hypothesis tells us that market price follows a random walk and is occasionally influenced by big fundamental news stories which cause significant market ups and downs. In light of this theory, the pattern of stock price movement for the past two months should be explained by a sequence of fundamental data that was initially good -- then turned bad -- then good again -- then bad -- then good... We still have no idea what the next news should be, because according to the efficient market hypothesis, all market-moving news arrives from 'outside of the system' and cannot be known in advance. (If they were known then they would be known to everyone and thus stop being market-moving news).
We could instead turn to technical analysis and say that prices are in a 'price channel'. We could draw two parallel lines to make the picture look like this:
But how would we know that the market would form this beautiful channel beforehand? We need something to warn us about market tops and bottoms as they happen, not after the fact.
Unlike technical analysis ChaosMonitor relies on rigorous scientific methods developed to analyse complex systems such as weather and the earth's crust. The ChaosMonitor model has provided accurate signals about market trend changes throughout the past two months and identified two market top reversals in September and October (below).
Then we had a bottom extension signal in early November which warned us about current decline coming to an end (below).
Another important signal came on volatility index (below). It showed that further rise in risk aversion was becoming unsustainable.
What do we expect today? The ChaosMonitor algorithm has identified an extension point on the NASDAQ index. This means that stock markets are likely to stop rising now.
= large price move next
or 
= this price move ends