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Extracting Meaning from Big Data

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By Lipa Roitman Ph.D.
May 12 2013

It is well known that the market as a whole is one living interacting system. What goes on in one industry sector has implications for the rest of the economy.  That is why most stocks move up and down together in waves.

The I Know First algorithms predict hundreds of stocks, indices, currencies, and commodities.  The stocks and stock indices among them are a snapshot of the whole economy, representing the major industry sectors. The forecast is published as a color coded heat map table with green cells indicating up signal, the red ones a down signal. The table helps to quickly get an idea of predictions for the whole assembly of stocks. It would be interesting to see whether a simple measure of the average signal for the whole group of stocks could predict the broader market movement. The chart below (Fig.1) shows such statistics for the I Know First algorithms forecasts over a period of the last 18 months. In lieu of the signals for individual stock, a combined signal of all stocks in the system was calculated for each of the six time ranges. The positive or negative (up or down) signals of the forecast were added to the actual last known price at the time of forecast. Thus, when the signal line is above the actual line, it means buy, if below, then sell. Each point on this chart was taken from the actual daily forecast published in the morning before the next market open. There are six times range forecasts that the system outputs, from three days to one year ahead. One can see from the chart that the new way of using I Know First algorithms correctly predicted the two major up trends, September 2011 to July 2012, and November 2012 till today. The July-November 2012 signals were too weak to be actionable.   See: Fig. 1. S&P500 chart (thick blue line) vs. combined signals of all stocks in the system. The history of the I Know First published forecasts. The S&P 500 is up by 7.7 percent in the last 3 months. For the year, the benchmark S&P 500 is up a stunning 14.6 percent. In the October 16th 2012 Seeking Alpha article “2 S&P 500 Forecasts For 2012-13” we predicted that the markets would fall in November. And they fell indeed. Shortly before the November 14 lows the I Know First algorithms have signaled a broad market upturn. We have reported on the impending stock market up-trend as early as November 8, 2012. In the post-elections Seeking Alpha article 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. “ In the next, December 27 article “Fiscal Cliff or Not, the Economy is Recovering” we have emphasized a number of positive signals based on the I Know First algorithms forecasts, and concluded: “The economy is recovering steadily”. On March 17, in the article “Stock Market Forecast: Two Recovery Signals Based on Algorithms” and in the following continuation articles “…Part 2 (Australia, New Zealand, Asia)” and “…Part 3 (Latin America Indices)” we showed a picture of broad and strong recovery signs all over the world based on many index forecasts charts.. Conclusion: The stocks and indices in the I Know First system are a good representation of a broader market. The forecast for the plurality of stocks in the I Know First system can serve as a proxy for the S&P500 forecast.

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