Friday, July 27, 2007

The Model Missed This One

But Oscar was calling for an up day too, so I wasn't the only one. I made some money on the long side and then just when I realized that the market was going to really go down hard I had a bad trade losing just over $200 a contract. Could have been a lot worse today. The model is still predicting up for tomorrow and for a few days after that. Anyway, by the end of the day NDX was only down 1.22% which is slightly less than the model's 1.25% stop. So it wasn't that wrong in the end. Was looking to see if there was some way to predict what happened today, but I only found one past instance when the model "failed" in the exact same way - predicting up when the stochastic was above 20 but instead the stochastic fell the next day below 20 which is the oversold zone. So there wasn't anything I really could learn from that. And by the end of the day the model hadn't actually failed - the stochastic ended the day above 20.

I've tried to avoid making any bigger predictions about the market recently as the market has generally confounded any bearish predictions in recent years. Still the move down from the recent highs is a very nice impulse wave in Elliott Wave theory - a five wave move. If there is any validity in E-Wave theory then that won't be the entirety of the decline. After an upside correction we should expect to see at least another five waves down again.

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