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2010-04-23

Contributing Factors in Forecasting: Stocks vs. Stock Market and Sectors

Each company belongs to a particular industry, sector, national stock market, as well as, global stock market. If system conditions change, company and its stocks respond to this changes. Indeed, a general stock market exerts a significant influence on the behavior of an individual company stocks. That is why experienced investors always carefully watch the stock market, sectors, and industries conditions.

On the other hand, a company is a part of subsystems and global system. It means each company performance is a contributing factor in a whole system performance. So that we could analyze a single company and try to predict the behavior of the stock market. However, it is only partially possible. As example, the recent financial crisis caused by a system failure showed that system itself may have a significantly bigger risk-factor.

Since all structure and all levels of sub-structures depend mutually, it would be unwise to ignore either predictions of big, medium, or small parts or a whole system. Evidently it is possible to build a more accurate forecast by combining predictions for system, sub-systems, and elements of sub-system.

As example, let's consider a three-month forecast for stock market (515 stocks from different sectors):




stocks from different sectors:




and individual company stocks from a leading sector:




In conclusion, we could assume that there is a certain probability that the stock market will have a correction (downtrend around 8-12%) after May 6.



The charts have been calculated and plotted by Investment Analyzer Inv-An-4.



Nothing in this piece or in this blog should be construed as investment advice in any way. Always do your own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments.


© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.


2010-04-17

Predicting Stock Market Using Expert Method

The more methods and information are taken into consideration, the more precise an investment-related solution and, consequently, the more profitable is investing. One of the forecasting methods that uses a collective wisdom is an expert method. This method can be explained by following. As example, an experimentalist shows a pen and asks about 40 people to write down their estimate of the length. Then he collects notes and calculates the average number - normally it is almost 100% accurate. Why it works? Everyone makes errors in different directions so that averaging gives a precise result.

An example of simplified expert method forecast in stock forecasting can be analysts' opinions that collected and averaged. Such information can be found, for instance, on Yahoo Finance webpage "Analyst Opinion" for each stock, it is called "Recommendation Summary". If mean recommendation is equal or close to 1, experts predict strong performance because "1" means "strong buy". If mean recommendation is equal or close to 5, experts predict stock decline because "5" means "sell". It is natural to assume that the more experts express their opinions, the better should be the result of prediction.

Another example of expert forecast could be using your own research of different factors that can contribute certain "opinions" in composed forecast. You can assign different weight for each factor and build an estimation based on weighted averaging. For instance, fundamental analysis may be one the most influential factors, then news factor, technical analysis prediction factor, seasonal price fluctuation factor, etc. All these factors should be added with different weight coefficients. Then the result should be divided by total amount of all weights.

One more idea is to read different current news, analytical articles, blogs, investor forums and draw a summarized conclusion from all opinions, positive and negative predictions. To make this process more automatic, it can be possible to participate on-line polls. There are some websites where you can participate in building a collective forecast for S&P-500 index. You can share your opinion by voting and see the result of composite forecast. If you use more than one method, approach, or tool for prediction, it could be reasonable to give a vote for each one. All participants may benefit from building a simple average forecast. However, do not put too much trust in any method alone - make your own conclusion.

Link to: useful resources


© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.


2010-04-05

April 2010 Stock Market Outlook

Increase in US employment in March is the biggest increase in the last three years. Bloomberg estimates that the economy probably grew by 2.8% in the first quarter of 2010. Some economists believe that the deepest US recession since the 1930s has ended now.

The recent news about strong improvements in demand at services businesses and in the housing market added to an optimistic mood. White House economic adviser Larry Summers said in a newspaper interview with the Financial Times that the US economy is on the path to achieving self-sustaining growth - read more about this optimistic opinion...

Also read why US stocks look better and better, at least in the short run.

From the technical analysis side, the expectations are also positive, at least in a short run. The chart below represents SP-500 forecast for April calculated by Neural Network Stock Trend Predictor NNSTP-2. Neural Network forecast shows uptrend for April 2010:



The next chart shows Cycle Analysis forecast by Stock Market Analyzer-Predictor SMAP-3. It indicates a small uptrend until the middle of the April. Although it does not look so optimistic as previous one but after some correction at the end of May, the bigger uptrend is predicted again:



Nothing in this piece or in this blog should be construed as investment advice in any way. Always do your own research or/and consult a qualified investment advisor. It is wise to analyze data from multiple sources and draw your own conclusions based on the soundest principles. Be aware of the risks involved in stock investments.