Securities Research Services

Wednesday, January 02, 2008

Leave Predictions to the Gamblers Today

Monday the money managers were on vacation, leaving the day to the day traders. Prices took a dip at the close as day traders punched the clock making an exit. Essentially, we have had no valid clues over the past few sessions what to expect when money managers return today.

Going to the charts; we scanned each individual industry group looking for any areas of the market that are showing unusual strength or unusual weakness. The energies and agricultural continue to trade near their highs, which is bullish, but even these areas did not show any unusual levels of buying interest over the past few sessions.

Likewise, mortgage insurance and other areas that are in strong downtrends, like the home builders and areas of banking that are exposed to sub prime, continue to trade near their lows, but did not show any unusual levels of selling over the past few days.

For months now we have been arguing that the extremes offered some level of tradable advantage, but that everything in the middle offers only random probabilities at this time.

This hasn't changed.

And, since we haven't a clue how money managers are going to handle the extremes as we kick off the new year, it's best to pull up a chair and stay sidelined one more day.

If we had a gun to our head and were forced to make a prediction, we would guess that the weak action in December will give way to buying interest in early January. After that, it's anybody's best guess.

To be honest, it doesn't matter what the market does this year. Those who will make money will approach it objectively, they will run with the probabilities, use good money management, and if they are wrong, they will use their stops and reassess the probabilities once again. Adopting a grand theory about where the market is going to go and then betting in that direction hasn't paid off in the past and it won't this year either.

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