Stock Market Forecast: Two Recovery Signals Based on Algorithms
By Lipa Roitman Ph.D
March 17 2013
Past forecasts results
We are now near the end of the first quarter, and it’s time to summarize our end-of-2012 forecasts and compare them with the outcomes.
On November 8 2012, when the S&P500 stood at 1377.51 we wrote: “the long-term forecast for a year ahead is improving, meaning the S&P 500 will be mostly higher next year than what where it’s at today” . It is indeed higher today by 12.6%.
At the end of December in “Fiscal Cliff or Not, the Economy is Recovering” we reported on the first signs of economic recovery, as detected by the I Know First algorithms.
During the following ten weeks the signs got stronger.
First recovery signals
It all began last November. Just when everyone was expecting another year of depression, suddenly the I Know First algorithms showed strong signs of upcoming market recovery. And the important part is that the signs were all over the world. The signals came in two waves: After the mid-November lows most of the world indices have shown the first series of up signals in the second half of November. And the market went up in two pushes, making a pause the end of December. They resumed a push in January.
A second recovery signals
The strong up signals returned in February, and the second series of I Know First algorithm signals were mostly stronger than the first ones. The up signals were of different relative strengths, but consistently positive.
Signals strength and consistency.
The importance of the up signals was amplified by their consistency across many markets. They appeared simultaneously in many leading stocks and the world and sector indices. Green color (up signals) has been the predominant color of I Know First forecast tables ever since November 2012.
Humans vs the Algorithms
Human logic is always struggling with questions: “how much is too much”, “is it better to wait for correction?” On the other hand the algorithms give an answer based on numbers, not on emotions.
One more comment: One should pay attention to signal strength: DJT (Transportation) and XAL (airline) indexes (see below) gave the strongest and most persistent signals among indexes below; they also gave the highest returns.
About the charts below:
Each point on these charts was taken from the actual daily forecast published the morning before the next market open. Each forecast contains six different time horizon forecasts, from three days ahead to one year ahead. The charts show the actual price in thick blue. The positive or negative (Up or Down) signals of the forecast were added to the actual last known price at the time of forecast to result in signal lines. Thus, when the signal line is above the actual line, it means "buy," if below, it means "sell". The green and red arrows show what would be the best times to enter the market. The widely ranging signals are scaled relative to the previous average signal range to bring them into manageable scale to fit them all in one chart. The green and red arrows show what would be the best times to enter the market.
US Main Indices
S&P500 has risen 14.6 percent since the November lows. The chart below shows that the signals were in November through December, followed by January S&P500 rise. The second set of signals was in February, followed by the end of February rise.
NASDAQ (^IXIC) has risen 14.6 percent since the November lows. The chart below shows that the signals were in November through December, followed by January S&P500 rise. The second set of signals was in February, followed by the end of February rise.
The rise in the broader NASDAQ market (up 14.6%) was higher than in the NDX 100 (up 11.3%):
But the highest rise was in the transportation sector: DJT, Dow Jones Transportation Index rose 25.7%. It also had stronger signals than the rest:
The ^XAL airline index went stratospheric, up 38.8%. Unlike the other indices, it showed three sets of up signals: in November, December, and the end of January.
What’s next? Will the markets keep rising? And (even more importantly), will the economy keep recovering? The recent data says yes. The truck tonnage in January was up 6.5% from a year ago, strong evidence that the economy continues to expand. And J.P. Morgan now expects annualized first-quarter U.S. gross domestic product to grow 2.3%, compared with an earlier forecast of 1.5%. And the Labor Department statistics show the U.S. factory workers worked 41.9 hours-per-week, one of the highest in recent history.
It’s all good and well, but on the other hand, the hourly wages have dropped. And the mean household income for 60 percent of the US population is below what it was in 1998 and dropping:
Part 2 (Australia, New Zealand, Asia)
Part 3 (Latin America Indices)
