Smart Investing

Making sense of the market to make money

Thursday, August 09, 2007

Volatility confusing even IBD!

Looks like the recent volatility in the markets is confusing even the top investing newspaper in the United States. For the past 5 days not a single day has passed that the Dow has not seen a more than 200 point swing. The paper in question is Investors Business Daily. I assume you follow the paper - if not am doing a good PR for them - it's a good paper for sure! Anyway, I am amused how they have reported their "Big Picture" column in the paper recently. To keep the story short "Big Picture" column tells you the current market stance. Whether the market is in bull run or bear run. The indicator shows the market as "in confirmed rally", "under pressure", "in correction" etc. And they have a set of rules how they arrive at that conclusion. One of the rules is - their discretion :)

Here is how they reported their Big Picture column -
August,1 - Market in correction
August,2 - Day 1 of attempted rally
August,3 - Day 2 of attempted rally
August,6 - Market in correction
August,7 - Market in confirmed rally
August,8 - Market in confirmed rally
August,9 - Market in confirmed rally
August,10 - Rally under pressure

Oops! What is going on here? I did not expect such a reputed newspaper change stance so frequently. Markets sometime are calm and sometime volatile. But why try to predict something that can change the next day. If tomorrow the market goes up again are they going to say "Market in confirmed rally" again? Give me a break. Wouldn't it have been wise to just advice investors that current outlook is dicy and come up with some stance that tells "Market in confusion" :) That will at least help investors who do not want to take risk to leave the market alone.

It looks like the newspaper editors are using the discretion component of their decision making ruleset rather liberally. I have asked them some clarification regarding this. Lets see what they reply!