Odds for the Dow on 11/4/2010

Category	Prediction Rate	% Correct	Notes
Direction	8/10	80%	10/10 disregarding minor closing range
Range	7/10	70%	10/10 disregarding minor closing range
Significant High/Low*	1/2	50%	Threshold changed to 66%
Unfilled Gap**	1/2	50%
Next Day Gap**	2/2	100%
Gap Fill+	1/1	100%

* A significant high/low occurs when the market makes a move greater than 0.5%. This test is measuring the following case: If the odds of a significant high/low are >= 66% in either direction, a significant high/low was made the following day.
** An unfilled gap occurs when the market gaps and never fills. The next day gap determines if the condition correctly predicted the gap.The unfilled gap and next day gap tests are measuring times the odds of a positive low or negative high were >= 14%.
+ When the odds of a negative high/pos low <= 3% and the market gaps in the low odds direction, the gap fills.

First to deal with yesterday's tests:

1) Since the odds of a significant high >=66%, will the market close above the +0.5% range? NO
2) Since the odds of a significant high >=66%, will the market make a significant high tomorrow (>0.5%)? NO
3) Since the odds of a negative high (run away gap down) are <=3%, if the market gaps down, does the gap fill? Not applicable

Not too good at predicting those things. I may have to raise the 66% threshold back up to 70% if it fails again. The good news is that the model correctly predicted an up day today as well as the right range. Here are the odds for tomorrow. Although the odds are definitely tilted positive, it should be noted that the expected high is only in the 0 to 0.5% range and there is a 76% chance of a low in the 0 to -1% range, so I take that to mean the market is likely to show weakness intraday tomorrow.

People ask how they could use this information. I don't give trading advice. I can only present the odds. But if I were trading this, if I were long I'd probably buy some protection either via puts or a short ETF since there is a very high chance of weakness at some point tomorrow. If I were short, I'd probably buy some LONG protection during that intraday weakness tomorrow, since the odds don't favor a negative close. Of course, the situation at the time needs to dictate that decision. In terms of my primary signals, the bulls got a boost today since the VIX closed below the bollinger band mid-line. If it closes below it again tomorrow, I'll officially downgrade that signal to long. Nothing of major technical significance happened today that supports the bullish or bearish case, though.