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Managing Expectations


I have a good deal of compassion for meteorologists because they have the impossible job of trying to predict the outcome of something they have absolutely no control over. Sure, predicting the weather has become a bit less difficult with new technology and more experience, but it is still impossible to predict. (No - seriously, I am talking about the weather and not the market). Yesterday, a major winter storm was tracking up the east coast and just think of how many people were asking the weather guys and gals "how much snow would fall" or "when would it start?" Of course predicting the amount and time (still talking weather) is guesswork - but these folks are the experts and have to give and answer because God forbid they announce, "I don't know - just look out the window."

At 11:00am yesterday where I live in New Jersey, was supposed to get a couple of inches of snow after a mostly rain event. At 10:00pm we got about a foot. What happened was that the storm hadn't developed yet but the computer models said that a low would form and that it would track along the coast drawing warm air into the coastal area and therefore cutting down on snow amounts. The storm did form, but not exactly like the computer models suggested.

The reason I bring this to your attention is two fold. First, there isn't much happening in the way of news that relates to the market. Jobless claims fell more than expected, but the seasonality makes taking too much out of the numbers difficult. Secondly, the above paragraphs again remind us how to manage expectations.

I can't tell you how many times I turned on the weather channel yesterday (because everyone was coming to my house for Christmas dinner) to hear what the experts had to say and what the radar tracking was looking like. It made me laugh because it was like listening to financial media and studying graphs. This market has been in a storm that has been very difficult to predict, no matter what the indicators suggest and experts say (myself included). This market (like every market environment) is bigger than anyone's opinion and as a result, listening to what it is saying is much more important that telling it what to do because the "fundamentals say..." and the "technical indicators suggest..." blah blah blah blah blah!

The market continues to give conflicting signals across the board. Sure, as I suggested the over the past week, it is oversold and could experience a near-term bounce, but the intermediate-term indicators suggest lost momentum and as a result, there is no need to expect too much. Instead it makes sense to plan how to react to an oversold rally if it were to come vs. becoming overly excited about the prospect of a technical bounce.

The market is no different than the weather or life - if we manage our expectations, it is less likely to be disappointed.
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