This stock indicator has predicted over 100% of all market corrections!

Black Swan bg 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?

Example of an increasing linear sequenceThe 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:

Example of a sequence with a dip at the end.

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.

Price changes in ADP from 04/16 to 05/17It 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.

ADP price data from 04/16 to 05/17It’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:

  1. Minimize trading / investing fees
  2. Hold a diversified set of assets
  3. Save as much as you can
  4. 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.


Quote of the Day

If you see a whole thing – it seems that it’s always beautiful. Planets, lives… But up close a world’s all dirt and rocks. And day to day, life’s a hard job, you get tired, you lose the pattern.

7 thoughts on “This stock indicator has predicted over 100% of all market corrections!”

  1. Ciao DL,

    Could not agree more with your views, sometimes I read things that are closer to crystal ball guesses… I think that there is some “truth” out there in Technical Analysis, but relying solely on that seems to be a bit far fetched. The reality is that it’s impossible to predict the markets, so I have decided to stop trying to do that, and rely more on Fundamental Analysis and good old “first hand experience” (if I can, I try to buy stocks of products/services that I am familiar with). I was talking to a professional investor some time ago, about hedging my portfolio against possible drops, he just told me that it was “a waste of time” for the strategy that I follow as a drop in price would actually be beneficial to get higher dividends! I made a very complicated hedging calculation and, there, a very evident truth wiped all the work off my table… Having a target/strategy and be faithful to it is more important, peaks and troughs will always happen after all.
    Ciaociao
    Stal

    1. Hi Stal,
      I agree – I think that if you can’t reliably distinguish skill from luck then you have to question if there’s any skill there. And although the jury is still out on Technical Analysis, there’s not a whole lot of evidence that it’s reliably successful or predictive. So sticking to your strategy and riding it out as you mention is most likely good enough.
      And perversely, if you are in the accumulation phase then a stock market correction is a good thing – better to happen now so you can buy more cheaper stocks than once you’ve retired.
      Thanks for your comments – it’s always good to hear your thoughts!
      Best wishes,
      -DL

  2. Great post. First, sounds advice. Those four points summarized in the summary really hit the nail on the head. Second, we all love looking for patterns and that black swan indicator was really funny. You should submit that to CNBC or something. Sometimes when I see the “experts” draw lines and patterns on charts I go “huh?!?” I guess you can draw anything to make your point. Really funny!

    1. Hi DivHut,
      I’m glad you liked the post – I couldn’t resist a bit of humor and I thought that chart was awesome!
      I suppose if you sound confident enough and draw enough complicated lines / patterns then some people will believe you. And if you can sell your ‘advice’ to those people then even better. And if the advice turns out wrong, it can always be corrected with a “it would have worked if not for xxx” statement. But it’s not for me ๐Ÿ™‚
      Thanks for stopping by!
      Best wishes,
      -DL

  3. I really was hoping the “black swan correction” was a thing, sounded pretty cool and the chart was perfect, lol… Great post I really enjoyed the read and your tips are spot on. Investing is a game of patience and one shouldn’t overreact to market swings as it is very much part of the game, also, predicting the market will drive you crazy.

    1. Hi G.P.
      I’m glad you enjoyed the post! I probably should have started a new term like “angry red duck” correction – maybe next time ๐Ÿ™‚
      Definitely agree with you that investing takes patience and sticking to your plan.
      It looks like you’re starting a new blog / site so I wish you all the best with that and will check back later.
      Best wishes,
      -DL

  4. You really had me going there. LOL!

    Actually, I just did a post on my blog last week with the title, $UPS Stock Price Today (The โ€œBatmanโ€ Chart Pattern).

    (No, the Batman chart pattern is not a thing…or is it?)

    Anyway, great post DL!

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