Are Technical Indicators Useful?

Yes and No. Evidently, there are periods when technical analysis works and the periods when it does not. The reasons can be many – fundamental changes, revised expectations, unexpected news, etc. During the periods when a majority of market participants make their decisions based on past market performance, as a rule, there would be some technical indicators that relatively work well.

Are there best ones? During some periods, some indicators might be the best winners, others – the worst losers. But all things are subject to change. Besides, indicators and markets are often a two-way system, i.e., markets can be affected when a huge number of investors use the same indicator(s). For example, the indicator predicts flat 2 days and then an uptrend for 3 days. If everybody follows, the forecast fails because price would be driven up first 2 days by buying volume and then 3 days flat or down-trending due to taking profit.

Other technical methods. In many cases, due to a semi-stochastic nature of the market, probabilistic statistical methods are able to predict well. Some of the systems that employed such methods is Neural Network (NN). NN often suffers from “over-fitting”. It is bad because over-fitting gives an exact but sometimes wrong result more often than an approximate but correct one. Cycle analysis, as another statistical method, has other advantages and disadvantages.

October 2010 Stock Market Overview: Fundamentals Not Improving, Technicals Not Worsening

Due to a growing expectation that the US Federal Reserve will ease a credit environment to help the economy recovery, the US dollar dropped to several-month lows against most foreign currencies. More dollars may stimulate the economical growth. On the other hand, if the Federal Reserve pumps more dollars into the economy, a falling dollar can negatively affect consumers, businesses, and investors.

A dollar weakness together with the news that the US federal deficit for the 2010 budget year was estimated around $1.3 trillion add some fear of the instability of the system, Gold hit a new high that may also evidence a weak hope among investors for a decent stock market performance.

The US unemployment stayed at high 9.6% rate for the last couple of months. Adding jobless people who are not actively seeking work and people who are underemployed result more than 17%. Such statistics may indicate that the stimulus measures failed to create jobs as it was initially expected.

Some of technical indicators signal a lasting momentum that may keep the recent uptrend cycle for several weeks ahead. However, the third quarter earnings reports may not be so optimistic to sustain an existing stock market evaluation. In this case, major stock market indexes may have a correction if more negative news add the pressure.



The chart above shows S&P-500 forecast for the period from October 11 to October 22, 2010. The calculation has been performed using Neural Network Stock Trend Predictor NNSTP-2. The forecast is a slight uptrend.

S&P-500 Index May Drop Soon

There are several negative fundamental factors that can cause stock market downtrend: GDP growth slowed to 2.4% in the second quarter compared with 3.7% in the first quarter; jobless rate is at high level (9.5%); individuals and companies save cash at near record levels; consumer spending shows no signs of picking up; state budget deficit poses an additional risk to the US economy.

Despite a weak current conditions of the US economy and pessimistic investors' expectations, the stock market would continue to move sideways above some supportive level. However, technically S&P-500 Index is ready to start a downtrend cycle. The probability may increase with approaching September-October traditional low performance season.

Additionally, there is a natural stock market fluctuation. The following chart represents S&P-500 forecast for September 2010 using cycle analysis. The calculation has been performed using SMAP-3 computer program:




A possible prediction is a cycle with minimum in September. However, as always - technical prediction may be different if something fundamental happens.

Nothing in this piece or blog should be construed as investment advice in any way. Always do your own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments

Downloading Data for Investment Analyzer InvAn-3/4

Investment Analyzer InvAn-3/4 uses free data sources to update stock prices and financial data for technical and fundamental analyses. In some rare cases, it can be difficult to download the data from the Internet. The reasons can be different - an interrupting or slow Internet connection, unstable availability of the source, or the absence of requested data (for example, some company can go out of business and its data may be erased from databases).

Despite the fact that InvAn-3/4 built with the optimization to process such kind of errors, in some critical situations, for example, after several attempts to read the fundamental (financial) data with no success, the following error message can appear in a pop-up window:






The solution for this problem is the following:

1. Click "Continue" to close the pop-up window and then click "Save".
   
2. Since it stops on a particular symbol (company), check if this symbol name still exists by visiting Yahoo! Finance or Google. If data are not available anymore, consider deleting the problematic symbol record.
   
3. If company data are available, you may try to download data again starting from the number where it stopped using button "From - To" at the bottom of the form (in our example above, go to two boxes besides the button "From - To" and enter in boxes numbers 379 and 525).
   
4. If company data are unavailable, try to download data again starting from the number after where it stopped using button "From - To" at the bottom of the form (in our example above, go to two boxes besides the button "From - To" and enter in boxes numbers 380 and 525). Later consider deleting the symbol record.
   
5. If two above steps were unsuccessful, check the Internet connection or try to download later.
   

Stock Market Ups and Downs for the Next Three Months

S&P-500 has increased around 5% during the first decade of July. Evidently, the stock market was uplifted by investors' optimism. One of the most important fundamental factors that causes this uptrend was strong second-quarter earnings reports. Also other positive news factors stopped sliding down S&P-500 index.

From the technical point of view, downs and ups follow each other. Any action normally results a reaction. To discover periods and amplitudes of this natural market fluctuations, some investors use a cycle analysis. The cycle analysis also can be used to predict the further fluctuations. The following chart represents S&P-500 forecast for August-September-October, 2010. The calculation has been performed using Stock Market Predictor SMAP-3.



Possible prediction from the current 1078 value of S&P-500 is the following. It can increase in about 3-5% in the middle of August and then decrease below 1000 level in September. Then it can reverse to an uptrend again. However, as always - such technical prediction may change if something fundamental happens.

Nothing in this piece or blog should be construed as investment advice in any way. Always do your own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments