Weekly Perspectives – The Psychology of Prediction

Weekly Market Outlook For July 29 – AUG. 2, 2019
July 27, 2019
Bearish Divergence
Bearish Divergence
July 29, 2019
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Shooters Waterfront, Ft. Lauderdale, FL

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I am back from Ft. Lauderdale, FL for a few days before leaving to Playa del Carmen, MX at the end of the week.  If you ever find yourself in Ft. Lauderdale, do yourself a favor and check out Shooters Waterfront for some great drinks and seafood.  

Here’s to enjoying the rest of the summer and depending on the internet at the resort I hope to be able to deliver next week’s Weekly newsletter to you at the regularly scheduled time.

Now this past week, buyers once again took control and pushed the SPY and QQQ to all-time highs.

This coming week marks the final trading week of July and the beginning of August so we’ll want to pay close attention to see how price trades around the monthly open. 

Plenty of macro news and earnings on tap but AAPL’s earnings on Tuesday and Wednesday’s FOMC will be front in center for investor and traders.

As we’ve been noting on the weekly charts on SPY, QQQ, and DIA the buyers continue their dominance – when will the sellers be able to create a new weekly low?

In this week’s video, we look at the technical outlook for the VXXB SPY QQQ IWM DIA EEM TSX TLT GLD XAUUSD BTCUSD TOTAL UKOIL EEM KRE BPOP SMH INTC AAPL EA for the week of July 29 – August 2, 2019.

 

The Psychology Of Prediction – 

In Excel, the difference between wrong and early isn’t that big a deal. In Word, it’s enormous.

Why is the art of prediction so difficult?

Morgan Housel describes 12 common flaws, errors, and misadventures that occur in people’s heads when predictions are made.

Take a read at the list and see if you’ve ever fallen into some of these prediction traps.

  1. The distinction between “wrong” vs. “early” has less to do with analytics than the social ability to prevent listeners from giving up on you.
  2. Credibility is not impartial: Your willingness to believe a prediction is influenced by how much you need that prediction to be true. 
  3. History is the study of surprising events. Prediction is using historical data to forecast what events will happen next.
  4. Predictions are easiest to make when patterns are strong and have been around for a long time – which is often when those patterns are about to expire.
  5. Prediction is about probability and putting the odds of success in your favor. But observers mostly judge you in binary terms, right or wrong.
  6. Past predictions that end up on the unfortunate side of probabilistic odds might cause hesitancy to make more predictions in the future.
  7. Predictions are often calibrated to promote or preserve your reputation and career goals.
  8. Enough effort goes into an initial forecast that updating your views when new information becomes available can trigger the sunk-cost fallacy and cause you to be right or wrong for the wrong reason.
  9. Predicting the behavior of other people relies on understanding their motivations, incentives, social norms and how all those things change. That can be difficult if you are not a member of that group and have a different set of life experiences.
  10. Some predictions are intellectual stimulation and don’t need to be acted upon even if they’re right.
  11. If you refuse to make predictions because you know how hard they are you may become suspect of everyone else’s predictions even if they have insight and skills you don’t.
  12. Effort put into a prediction may increase confidence more than accuracy.

 

Why do investors buy bonds with a negative yield? – 

Bond market investors are often credited as being smarter than stock market investors. 

One of the basic assumptions of debt is that ­borrowers pay interest to lenders. That idea has been upended in the global bond market. There’s now about $13 trillion in negative-yielding bonds. Investors who hold them to maturity will end up getting less money than they paid for them, even including interest.

This Bloomberg piece gets into the rationale on why bond investors are still taking the trade.

Happy trading,

Houston

PS – Feel free to share this newsletter and our videos so we can reach more traders!

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Weekly Perspectives – The Psychology of Prediction

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