Trying to Predict Short-Term Trends

Topic of the day: Can the market's direction be predicted? Or rather, can the market's direction in the short term be predicted? (Over the long term, the only correct prediction is "up.")

It's always been my theory that nothing is more helpful in this regard than my own trading candidates. That is, if I suddenly have a lot of longs show up, the market is due to go up shortly. A lot of shorts? Look for a downturn.

With this thinking in mind, I started tracking these picks in a simple algorithm, taking a three-day sum of longs minus shorts, and then looking at that net number to forecast future market direction.

Sounds complicated, but it isn't, and the chart below -- affectionately named "The Ginsberg" after one of my newsletter subscribers -- shows you what I'm talking about.

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As you can see, "TG" isn't perfect, and it will miss some moves from time to time. On the whole, however, it does a pretty good job of forecasting changes in direction and future short-term trends.

I continue to refine it and see if it can be improved. But my point is that sometimes the best tools come from your own trading data and history. And if that history can give you even a slight edge, it can result in large profits down the line.

Today, the Nasdaq, Microsoft (MSFT - commentary - Cramer's Take), Intel (INTC - commentary - Cramer's Take), General Motors (GM - commentary - Cramer's Take), Ford (F - commentary - Cramer's Take) and Alpharma (ALO - commentary - Cramer's Take).

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Charts produced by TC2000, which is a registered trademark of Worden Brothers Inc.

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And that is the final word from Quimper, France, where I regularly tune into the Outdoor Life Network to catch the daily comings and goings of the Tour de France. I'm no expert, but barring a crash, it's tough to envision L. Armstrong not claiming trophy No. 6.

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Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes a daily technical analysis column for RealMoney.com and also produces a daily premium product for TheStreet.com called The Chartman's Top Stocks -- click here for a free two-week trial. While Gary cannot provide investment advice or recommendations, he invites you to send your feedback to [e-mail].