This Stock Indicator Has Predicted Over 100% of All Market Corrections!
With the stock market at all time record highs, it’s only a matter of time before the next stock market crash happens. Look out for this one stock indicator that has accurately predicted twenty-seven of the last nine Black Swan corrections – that’s how good it is!
Black Swan events
Black swan events are statistically unlikely surprises that have major impacts such as a major stock market correction.
The name originates from the presumption that black swans didn’t actually exist – a reasonable assumption if you’ve only grown up in the west seeing white swans. But of course they do exist and originate from Australia.
What if you could accurately predict the next black swan event affecting the stock market?
Hidden in the past stock price data are messages about the future! And if you know the right patterns you can use that to your advantage.
This particular indicator goes beyond the typical breakout past a stock’s resistance level. It even exceeds the predictive power of both a Double Bottom pattern and a Hanging Man, combined! Heck, it handily beats a Dead Cat Bounce!
Read on to discover the secret of predicting the next Black Swan stock market crash.
But first…
Why am I telling you this secret in the first place?
This secret was passed on to me from a mystical wise man who I met one day in a local book shop. Strange but true. For unknown reasons he confided this secret to me, as he wanted me to be wealthy beyond my dreams. And for those same unknown reasons I’m passing it on to you so you can be wealthy beyond your dreams too! And if you pass it on, then the whole world will be wealthy beyond everyone’s dreams and it’ll be great! Except for the skeptics who will be poor.
The Black Swan Predictor Indicator Pattern
And so, without further ado, here’s what to watch out for in the stock market charts. Be very cautious when you see this!
This image was taken from an old thread on the Bogleheads forum.
So I lied. My bad.
Investing isn’t a get-rich-quick scheme, despite the commercials and common perception of Wall Street brokers. And there are no guarantees. It’s made some people incredibly rich (as has the lottery) but it’s likely made more people poor.
Mostly Wall Street brokerages make money by earning a guaranteed commission on managing your money and providing you an unguaranteed result – great for them, not so good for you.
But Technical Analysis, or the study of patterns and trends in the historical stock market prices. is a real thing and a big industry. I am a skeptic, since I don’t believe that the stock market thinks “yep, I’m half-way through this double-bottom pattern now, time to change direction”. But ironically if enough people believe in the concept and buy/sell enough stocks then they’ll move the market and make the concept real.
Since I’m an engineer, I lean more towards Fundamental Analysis. And lately, not much of that since I think Savings Rate, Diversification and Time are really all that you need to succeed in investing.
But let’s take a look at a couple of psychological quirks about patterns and our minds.
We love to see patterns
Our brain is designed to detect patterns. It’s how we see things. And it’s fantastic at doing so. We can recognize the same person after they’ve aged forty years. Although I am genetically flawed, as I have never been able to spot the parent’s features in any new-born baby.
It amazes me sometimes, the number of times there are articles about some man-made face on Mars from a photo taken from a space craft, or a vegetable that looks like Jesus.
People would be better off using Occam’s Razor. What’s more likely to be the truth…
a) Aliens travelled to Mars and sculpted a man’s face on a really small rock for us to eventually discover at random.
OR
b) It’s just a shadow on a rock that happens to look like a face.
Of course b) is boring. The first answer is much more sensational and likely to attract attention. The same thing goes for investing.
Predicting trends
It’s human nature to want to feel in control of something. It makes us comfortable. So with that in mind, let’s look at a numerical sequence. Based on the chart below, do you think the next result for January will be
1) Upwards
2) Downwards?
The odds are, given only the data in the chart, that you’d guess the chart would continue upwards.
Now let’s repeat the same test with another sequence:
Will this second chart go Up or Down? I’m guessing that you’d be more inclined to say Down than in the first example above.
There’s no correct answer for either charts – I just made up the data and the next result could even be off the scale which I doubt was in anyone’s assumption for the next value.
Back in the investing world
In the real world, when we see a stock price chart we add our own thoughts and opinions to the data to influence where we think the price is headed. It’s natural for us to extrapolate the chart based on what we see.
But when it comes to the future stock market direction, it’s largely an unpredictable result. Vizzini from the Princess Bride can teach us some lessons about over-analyzing.
Adding some drama
Here’s a chart of the price changes in ADP, a stock that I own long and do not plan to sell anytime soon.
It looks quite volatile all things considered. And this is how stock prices are usually presented to you when you look at your brokerage page.
And it’s perfectly correct too. But it’s a little more sensational than it needs to be. Here’s the exact same data but with one little change in how it’s charted.
It’s a lot more steady and not that dramatic. The only thing that changed is the scale of the y-axis which now starts from zero instead of 84.
Summary
Successful investing isn’t about avoiding or predicting market corrections or the start / end of the next bull / bear market. Yes, you might be lucky and get better returns if you get it right. But the chances are you’ll get it wrong.
The four things that you can do to maximize the odds of a successful investing outcome are:
- Minimize trading / investing fees
- Hold a diversified set of assets
- Save as much as you can
- Don’t panic and let time do its thing
So ignore the noise and stay the course as much as possible. It may be a rollercoaster ride over the next ten, twenty or thirty years but you’ll get there. Record highs are to be expected not feared – it’s what compounded growth means after all.
Disclaimer: No swans were injured in the writing on this article which was intended to be humorous. There is no secret black swan indicator and I have never met a mystical wise man in a book shop.