The two major exchanges on Wall Street have enjoyed unprecedented growth over the last few years, and this situation has many analysts wondering how long this bullish run will last.
Investors are asking themselves two questions: How high is too high and when will the market change direction? Both the New York Stock Exchange and the Nasdaq are at record levels despite a few recent weeks of losses in the tech and financial sectors.
The Wall Street bull run has lasted this long for a few reasons, one of them being the ongoing recovery of the United States, which started around 2012 and has been gradual. There is also the excitement surrounding initial public offerings of companies such as Facebook and Twitter. Another factor that cannot be ignored is that the Trump administration has promised an economic stimulus package that is expected to be announced at some point in 2017.
Predicting the Direction of Wall Street
At first glance, financial markets seem to be unpredictable and sensitive to major news headlines; this much was made evident on the night of the United States presidential election when there was uncertainty created by the political forecast models that had incorrectly predicted a landslide victory for former Secretary of State Hillary Clinton. Investors engaged in after hours trading quickly sold off their market positions after they noticed turmoil in overseas exchanges, but the situation was rectified after the votes were counted.
A forecast on the general direction of Wall Street can actually be made with stock market prediction software based on historical charts of the S&P 500 index. It is important to remember that traders react to more than just headlines, institutional investors and investment banking firms often consult technical charts to gauge the sentiments that traders take upon certain changes in the market.
Trader psychology and behavior can be predicted, and this is what the Universal Market Predictor Index looks at when it presents a trend and a threshold. Development of the UMPI involved more than two decades of research and analysis to come up with a prediction model that shows the direction that Wall Street is bound to take once once certain patterns are detected.
The idea behind the UMPI is to provide better than average returns at a time when volatility could be experienced at any moment. The heavy selling of tech stocks on Wall Street during June 2017 is a good example of a situation when the UMPI can be put to good use, and this is a vital tool at a time when the Federal Reserve shows that it intends to keep rising interest rates.
Wall Street history shows that interest rate hikes tend to put pressure on the markets; however, the Volatiliy Index, which is better known as VIX, is not showing fear or concern among investors, but this does not guarantee that the bull run may continue. Likewise, it is not important to try to guess when the major correction will come about; this is known as trying to time the market and it is not effective. Smart traders use tools such as the UMPI to predict the direction of the market instead of attempting to time it.