Commodities forecast from October 2 2012 (before market opening) based on "I Know First" stock forecast algorithm.
The forecast date: October 2 2012 (before market opening). Time horizon of the forecast: 30 trading days from October 2 2012.
The commodities forecast includes prediction for the Top 3 commodities for this month: 3 commodities with the strongest signal that fit for short position.
Apple (AAPL) is now the most valuable company of all time. Rumors of new iPhone and the release of the iPhone 5 have been running rampant of late, helping to give shares their latest boost. Being in a high-tech field, AAPL stock has a different dynamics than the rest of the market. Thus playing AAPL against S&P 500 is an interesting proposition. Both AAPL and SPY "Spider" have large market capitalization and are considered relatively ‘safe’ investments. Playing one against the other would be like speculating on the high-tech VS. the whole market, or NASDAQ VS. NYSE. Which one will outperform the other?
Let’s see if the dramatic rise of AAPL against the S&P 500 over the last year (see FIG.1) could have been predicted.
The IKNOWFIRST stock market forecast algorithm provides daily forecasts for stocks, indexes, currencies and commodities, among them Apple stock forecast and the S&P 500 index forecast. For each market (For example the AAPL) the following data is calculated daily by the self learning algorithm:
1. Signal – The movement direction (increase/decrease). Six such signals are given for each market for six time horizons, from three days ahead up to a year ahead. The signal strength is the absolute value of the current prediction of the system. The signal can have a positive (predicted increase), or negative (predicted decline) sign. The signal tells how much the last price deviates from what the algorithm thinks is the "fair" or "equilibrium" price.
2. Predictability – The "strength" of the prediction, which indicates how confident the system is about the prediction. Predictability is calculated by measuring the past performance of the system for that market and for that time horizon. Theoretically it could range from minus 1 (actual move opposite to predicted) to plus 1 (perfect prediction). For the 150+ markets in the system the predictability generally ranges from 0.3 to 0.7, depending on the market and time horizon.
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Method We have analyzed the performance of the system in order to develop a profitable low risk strategy. In this article we report the results of the performance of IKNOWFIRST algorithms for predicting the AAPL and S&P500 index. We have also compared the signals of these two markets in order to see whether the algorithms were sensitive enough to correctly predict the AAPL / S&P 500 ratio.
Figs 2 and 3 show the AAPL / S&P 500 ratio in red thick line. The blue signal line shows the algorithm prediction (signal) for that spread, Fig. 2 shows the 30 days horizon signal, Fig. 3, the 90 days signal. Each point in these lines was taken from the forecast produced daily by the system over the last year. To make this chart the AAPL signal was divided by the S&P500 signal. The resulted AAPL / S&P500 daily signal was added to the corresponding AAPL / S&P 500 daily ratio. Thus if the signal blue line is above the red actual line, that means a BUY signal, if below, SELL signal.
One can see from Figs 2 and 3 that from the beginning of January to the end of March the signal was BUY, and if one were to follow up on that signal and be long AAPL and short S&P 500, he would gain up to 45 percent, depending on what stage he closes the position. This is one example of "market neutral" strategies, which means being simultaneously long one equity and short another. This strategy makes the position less sensitive to general market fluctuations.
As a side remark, Figs. 2 and 3. show that the system have correctly predicted the positive market reaction to the new iphone3 model.
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Fig. 4 shows the average predictability for the 30 and 90 day forecasts. It was generally positive, with the 90 days predictability higher than the 30 days. That is in line of what we have generally seen in most markets in the system, the longer term forecasts have higher predictability. We think that is because the long term forecasts are less affected by the daily market noise.
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Discussion and Conclusions We showed here that apple stock latest rise against the S&P 500 index was predictable.
Along the way we have come upon a possible market strategy that utilizes AAPL and S&P 500 forecasts to create a spread that is not dependent on the general market trend, but only on the high-tech VS. the general market play, i.e. a kind of "market neutral" strategy. It could be possible to apply this to other market pairs,
There are now two ways to trade the market using the algorithm. One is to simply trade long or short the individual equities. We propose today the second method, to trade spreads of equities such as AAPL-S&P 500, NASDAQ-S&P 500, DJI-S&P 500 and Russell 2000-S&P 500. All trading is risky, but this lower risk strategy has the advantage of being somewhat insulated from the general market ups and downs. Again, one needs to use judgment when trading. Going long on any equity after a long uptrend is risky. There are always safer opportunities.
David Kostin, Goldman Sachs’s chief U.S. equity strategist, expects stocks to have another positive year in the year 2013. "We forecast S&P 500 will reach 1575 at year-end 2013 based on our new 2014 EPS estimate of $114 and a fair value P/E of 13.9X," he wrote in a note to clients on October 5 2012.
Here’s how Goldman Sachs sees the S&P moving through the end of 2013: Kostin thinks this will be a Fed-induced QE-driven rally. "The FOMC’s open-ended easing program allows investors to look past current stagnant economic
I Know First-Daily Market Forecast, does not provide personal investment or financial advice to individuals, or act as personal financial, legal, or institutional investment advisors, or individually advocate the purchase or sale of any security or investment or the use of any particular financial strategy. All investing, stock forecasts and investment strategies include the risk of loss for some or even all of your capital. Before pursuing any financial strategies discussed on this website, you should always consult with a licensed financial advisor.