A good example is the high likelihood of a loss from January 5-13. Since 1990, the FTSE 100 rose just once during this period versus a whopping 17 declines.
The single exception to the rule occurred in 1997 when the Dow Jones Industrial Average kicked off the year by setting several all-time highs. But even during this euphoric time, the FTSE 100 remained in the red until the final day of the period when a fresh Dow record finally triggered a rally to wash away the red ink.
Many Random Walk fans do not trust repetitive patterns such as this one. Their mantra is to dismiss such trends as random occurrences that are likely to end as quickly as they began.
Who knows? Random Walkers might be right. There are no certainties when it comes to investing. My own view is that a substantive issue drives this trend - perhaps worries about the upcoming earnings season.
Whatever the cause, 17 dips out of 18 tries does not look or feel like a random event to me. For this reason, I plan to put my money where my mouth is with a Footsie down bet.
Looking further ahead, the trend for the rest of the month is likely to be influenced by those upcoming earnings announcements. I shall probably remain on the sidelines until the underlying trend tips its hand. The only exception might be a trade or two within a small group of shares that I know very well and feel comfortable with.
Some traders are happy to take short-term punts with shares they are not especially familiar with. But I believe that scattergun approach is dangerous during uncertain times. I prefer to trade shares that I have lived with and know their fundamentals, normal daily trading patterns, investor bulletin board gossip and what chartists are thinking. It gives me confidence to quickly open or close positions during uncertain times like now.
A good example is Vanco, a designer and installer of telephone networks. I have traded this share several times since first writing about it a few months ago.
I am comfortable with Vanco for several reasons. Prices fell massively in the past 18 months. The shares are now in a base-building phase. The company is optimistic about its future growth prospects. From my vantage point, downside risk for this share is now lower than it has been for several years.
Another plus for short-term traders like me is that Vanco shares are tightly held. A limited number are available to the public. This causes price fluctuations to be exaggerated.
As the graph shows, the last rally ran out of steam about two months ago near 200p. Prices are again approaching this level. If shares break out above 200p, I shall increase my holdings by a large margin to catch a healthy continuation rally.
Conversely, a failure to penetrate 200 is a clear signal to sell because the shares remain trapped in a trading range of roughly 150p to 190p. Either way, Vanco is a comfortable share to trade during uncertain times.
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