Stock Forecast Methods

Stock Market Trading and Investing

A Short Overview of the US Stock Market

The US unemployment rate decreased to 9.7% in May, after rising to 9.9% in April. However, the economic growth in the first quarter was slower than expected; it grew at a 3% annual rate from January to March. Consumers and businesses spent less than first estimated. US trade deficit was a drag on economic activity. Also US housing market started falling more than expected in May to a five-month low as a home-buyer tax credit expired.

Evidently, fears continue to dominate investor decisions because of the debt crisis and financial regulatory reforms. It looks like many investors still watch for better moments to re-enter the stock market. An additional factor is seasonal – since summer almost always has been a sluggish period for stock investing. Nevertheless, S&P-500 index showed some strength for two weeks of June – the biggest two-week gain since November. The recent 13%-drop in May could be a healthy correction. Normally a correction is defined as a drop more than 10% from a recent maximum.

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June 19, 2010 Posted by | Stock Market Forecast | , , , , , , , , , , | Leave a comment

The Technical Indicator to Watch Rapid Sell-off

One of the best technical indicators to watch a rapid sell-off is a high-order derivative. In mathematics, the derivative is a measure of how a function changes as its argument (input) changes. In stock investing, the derivative can be used to measure how fast the price of a stock changes for a shortest measured period, for example, in case of EOD, one trading day. The following formula can be used for calculation of the first order derivative:

Δ1 = p2 – p1

where p2 – current day closing price, p1 – previous day closing price

In other words, Δ1 is a speed of changing price. If we apply the same formula to two derivatives – current and previous , we get the second order derivative (or acceleration):

Δ2 = Δ12 – Δ11

where Δ12 – current day first order derivative, Δ11 – previous day first order derivative

We can calculate respectfully the third order derivative Δ3, which can be described as speed of changing acceleration. It can be considered as an indicator of panics in the stock market – the more its absolute value is, the more nervous investors behavior in stock market is.

The chart below shows the result of SP-500 index forecast built by Neural Network (trained by the third order derivative). Forecast horizon is two-week period (May 10-21) after May 6 stock market plunge:

The Technical Indicator to Watch Rapid Sell-off


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

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

May 8, 2010 Posted by | Stock Market Forecast, Stock Market Software | , , , , , | 1 Comment

Forecasting Helps to Adjust Stock Investing Plan

Forecasting and planning are powerful things in stock investing. If an investor create a plan that is based on reliable forecasts, the plan has better chances to reach projected goals. Forecasting methods can be classified as either subjective (judgmental) or objective (extrapolative). Objective methods are regression analysis, time series methods, different moving averages, and other statistical methods.

Some forecasting methods use the correlation between causing factors and output forecasting parameter. For example, quarterly financial reports can help to predict the stock price, i.e., identify how the stock market would react to publishing these reports. The historical data themselves can be causing factors for future movements. Some methods employ this idea together with statistical methods, for example, cycle analysis and neural network.

Investors should try to have all possible information about the stock and its environment before starting investing. It would be easier to have a good investing plan if an investor could predict the acceptable outcomes. As a rule, we cannot change the environment to be favorable for us. However, we can create a good plan to reach our goal. In addition, it is better to have “plan B” or even a few plans in case if the future will not look like it was predicted.

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

March 28, 2010 Posted by | Stock Market Forecast | , , , , , , , , , | Leave a comment