Basic of Stock market, Investor Trainning, Learning

The Strongest Market Signal



The two approaches to market timing—predictive and confirming—almost always give conflicting signals when analyzing movementsof the same time domain. That is okay because they are usedfor different purposes and have different goals. If contrary opinionsays that the market has reached bottom over the intermediateterm, the other approach—trending indicators for the intermediateterm—almost always indicates that the trend is still down.This is normal. Why? Because it is normal that investors becomevery bearish (furnishing us with buy signals using contrary opinion)as prices are plummeting and at their low. The large price dropmakes the trend indicators point down, but the predictive indicatorsare showing that the end of the decline has been reached andhigher prices are ahead.However, there are times when the two approaches do not giveconflicting signals, and these are very important to note. When predictiveindicators such as contrary opinion strongly indicate higherprices, and the confirming indicators have already confirmed thestart of a slight uptrend, that is the strongest buy signal there is.There is nothing more reliable or important than when this unusualsituation happens.Why is this so? It is expected that, as prices move up, more andmore investors will become bullish. When, however, the bearish sentimentstays high or even moves higher as prices also move higher,that is not expected, and so it is the sign of a very strong stock market.At these moments, what is happening is that no one believes theupward price movement is real or that it will last. This skepticism isthe fuel needed to keep the movement going, usually for some time.The same holds true when both categories of indicators are confirmingthat prices are declining. If contrary opinion is extremelybullish and stock prices have already started down, so much so thattrend-following indicators are confirming the downtrend, there is no more reliable or important sell indicator.


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