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The Science and Art of Stock Market Predictions

Over the holiday, I thought a lot about predictions and how they are formed.

The dictionary meaning of prediction is a statement about a future event or data. Many of the predictions for 2024 that I have seen are made by what we assume are knowledgeable people in the financial fields. Probability, intuition, experience, inductive and deductive reasoning are all factors that go into making predictions.

In the case of Raymond Lo and the Chinese New Year, his predictions are based on his research, education, and experience. Lo has become famous for his accuracy correctly predicting hundreds of events. I incorporate his predictions with mine. I like to think that makes my predictions stronger. (You can find them all on our website under Market Beat.)

This year in particular, I find predictions fascinating, as we have what is known as statistical inference, or models based on cross-sectional data at play. In other words, based on last year’s performance of the market and this election year, models are statistically favoring gains in the market for 2024.

“In science, a prediction is a rigorous, often quantitative, statement, forecasting what would be observed under specific conditions.” And that’s the rub about stock market predictions: “under specific conditions.” So what happens if those conditions change? And how do chaos theory and randomness factor in?

We already know that there are factors that can create more chaos such as:

  • Geopolitics: Supply chain, labor issues, possible recession followed by more inflation
  • Natural Disasters
  • Debt and government spending
  • Dollar in a downtrend
  • Misstep by FED in reducing rates too fast, or keeping rates flat while CPI picks up

Not to mention the notion of randomness or something occurring we cannot imagine or prepare for in advance.

In chaos theory, there is the butterfly effect, referring to a metaphorical butterfly that flaps its wings in New Mexico and indirectly causes a tsunami in Japan. We have lots of butterflies flapping their wings!

Wikipedia states that “economic events may span several years, and the world is changing over a similar time frame, thus invalidating the relevance of past observations to the present. Thus, there are an extremely small number (of the order of 1) of relevant past data points from which to project the future.” Let’s just call them lagging indicators.

However, since we cannot ascertain unforeseen events and this year, we already KNOW what can create havoc, but we do not know if nor when,

WHAT CAN WE DO?

It’s all 2 things:

  1. Evaluating Market Behavior with Tools
  2. Risk Control

As for tools, January is a great time to study calendar ranges, something Geoff is teaching in a course tonight: How Identify Profit from January’s Big Trend Trades. I will also discuss and write about this a lot in the next 3 weeks. Furthermore, chart patterns and phases will be helpful to become familiar with. And risk, well that’s everything really. Active investing this year will be key.

Remember the dragon and how we do not want to tickle it? Right. Enjoy it when the dragon is the gate of heaven. However, without risk controls, investors can get hurt, not only because of the nature of predictions and the unknown (plus the knowns we can’t predict if/when they exacerbate), but also, because in this year — the Year of the Dragon — we must be even more vigilant, as the dragon can also be at the gate of hell.


Click this link to get your free copy of the Outlook 2024 and stay in the loop!


This is for educational purposes only. Trading comes with risk.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at Benny@MGAMLLC.com, our Head of Institutional Sales. Cell: 612-518-2482.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

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“I grew my money tree and so can you!” – Mish Schneider

Follow Mish on X @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Mish in the Media

Stay tuned for clips from Business First AM, Fox Business, BNN Bloomberg and The Final Bar!

Recorded on December 28, Mish talks about themes for 2024 to look for, and tells you where to focus, what to buy, and what to avoid depending on economic and market conditions on Singapore Breakfast Bites.

Mish sits down with 2 other market experts to help you prepare for 2024 with predictions, picks, and technical analysis in StockCharts TV’s Charting Forward special.

Recorded December 27, Mish gives you a quick snippet of the overall macro prediction for 2024 on The Street with J.D. Durkin.

Mish and friends look at 2023 and make several predictions on commodities and trends for 2024 and vanity stocks in Benzinga Pre-Market Prep.

Mish discusses gold, silver and why self care and “all about me” can trend in 2024 in this video from Yahoo! Finance.


Coming Up:

January 3: Real Vision IP Group Special Presentation

January 5: Daily Briefing, Real Vision

January 22: Your Daily Five, StockCharts TV

January 24: Yahoo! Finance

Weekly: Business First AM, CMC Markets


ETF Summary

  • S&P 500 (SPY): 480 all-time highs, 460 underlying support.
  • Russell 2000 (IWM): 200 pivotal.
  • Dow (DIA): Needs to hold 370.
  • Nasdaq (QQQ): 410 pivotal.
  • Regional Banks (KRE): 47 support, 55 resistance.
  • Semiconductors (SMH): 170 support needs to hold.
  • Transportation (IYT): Needs to hold 250.
  • Biotechnology (IBB): 130 pivotal support.
  • Retail (XRT): The longer this stays over 70.00 the better!

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

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