SPX forecast using the F-Shift Forecaster
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1) Weighted NEGATIVE (black bar) outcome value is greater than a probable greater value in 12 periods (compare #1 vs. #3)
2) NON-Weighted NEGATIVE (grey bar) outcome value is greater that a probable greater value in 12 periods (compare #2 vs. #4)
3) Weighted NEGATIVE (black bar) outcome value is greater than the NON-Weighted NEGATIVE (grey bar) outcome value (compare #1 vs. #2)
Statistically and from a probable outcome standpoint, SPX will end with a lower value 12 trading days from today Aug.24,2010
Finally, notice the area marked #5 – this represents the probability of a GREATER than -10% move in the markets in the next 12 trading days. While the value is minimal in both the weighted and non-weighted outcomes ( 9.0% and 1.2% respectively), the percentage INCREASE in the probability of a -10% move occurring over the next 12 trading days (weighted vs. non-weighted) has increased by 650%. Reading “between the lines”, this tells me there are probably going to be some substantial down trading days within the next 12. Once again … the over chance of the market closing -10% in the next 12 trading days is minimal but there is a strong increase in the probability of some larger than normal negative days such as today.
Fianlly – if you notice this forecast was made with end of day data up until Aug.23,2010. The date of this blog post is Aug. 24,2010 so todays data is not entered into this forecast. At 12:15 pm EST , the market has been down as much as -1.50 % (approximately). We have rallied off the days lows which is to be expected and we are still hovering around the -1% level. I expect a resumption of the negative market sentiment as we head into the close. Look for the days lows to be re-challenged if not penetrated to the downside.
Fulcrum Shift Trading and Advisory
The setup is more telltale than the actual action
I’m looking at the SPX daily chart at 8:15 EST – about an hour or so before the markets open, and we have the SP500 futures decisively negative (-11.00 points @ 1054.50). Obviously a gap lower appears to be in order unless some market moving information breaks in the next hour. Its NOT the large negative futures reading that I am initially drawn to in my analysis, rather the preceding chart pattern. I have attached an annotated screen shot to highlight what, in my humble opinion, takes precedent over any futures reading going into the open, as to how the day will probably unfold.
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As noted in the chart to to the left, there was really only 1 significant day where we rallied since the sell off began. This was followed may a un-eventful range bound day and then a resumption of the selling pressure. In my experience, I tend to ignore the “sideways” action (with only 1 meaningful up day in the mix) and consider todays action (which will be obviously negative from the open based on the futures) just a continuation of the selloff which began on Aug.9 2010. From this preceding price action I can then make a probable assumption that the low of the year in the SP500 (as denoted by the red horizontal support line) should hold for a few days at the very least given the fact that I would consider any move down to that area of support an exhaustive move which, once again, started back on Aug.9.
Below I have mapped out what I think will be the most likely outcome for the SP500 in the days ahead.
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I will follow this post up with the F-Shift Forecaster’s forecast detailing a quantifiable probable forecast as to what we should be in store for over the next 12 trading days.
Fulcrum Shift Trading and Advisory
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The F-Shift Forecaster – an introduction to a powerful market forecasting tool
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he F-Shift Forecaster® utilizes, re-samples and randomizes historical market data to generate high probability outcomes, in a straight forward, un-biased, timely and accurate approach. Simply put – it uses a data mining methodology within an Excel environment, to generate market forecasts without the use of any of today’s plethora of traditional technical indicators and tools. This application was designed and built as a tool within a progressive suite of forecasting tools developed by Fulcrum Shift Advisory which offers a “data mining” specific view or forecast as to future price probabilities regardless of the market.
Bootstrapping is a technique which effectively states that what occurred in the past will in all likelihood; occur again in the future – specifically when dealing in returns
CLICK TO ENLARGE
By re-sampling data, in this case, the percentage change from close to close (daily, weekly or monthly depending on the user defined time frame one wishes to trade or forecast) you can make statistical inferences. In plain English, because we are populating the platform with a percentage change as opposed to closing prices or other “price levels”, we can re-use the same historical percentage change data point more than once. We then can make inferences based on the cumulative results of this repeated sampling. Percentage changes from one day to the next, from one week to the next or from one month to the next – regardless of the time frame – are a constant. The actual percentage AMOUNT may vary but unless a closing price is identical to the prior period (day, week, or month) there is always a percentage change in flux and again, price level has no bearing. Here’s why. If a stock were at $100 and it were to drop to $98, a -2% change just occurred (let’s just assume from one day to the next). Lets fast forward now to the end of ’08 during the market crash. That same stock is now trading at $25. The following day the same stock loses only $ .50 but it still represents a -2% change from close to close.
With the addition of a proprietary weighting component, the F-Shift Forecaster can refine these probable outcomes by placing emphasis or an “importance” on the more current data points of our choosing. Weighting probable outcomes is a commonly used practice in most professional sports teams such as football, basketball and hockey.
Custom Weighting Component - CLICK TO ENLARGE
Each year, amateur athletes enter their drafts hoping to be picked in the 1st round of their respective sports. The teams with the highest probability of getting the coveted 1st pick are the teams with the worst regular season win/loss record. This is an attempt by the league to level the playing field and so it should be. Let’s use the NBA to illustrate this point. The (NBA) recently held their draft lottery with each team having a shot at getting the 1st pick in the 1st round. How do they accomplish this? Each teams name is entered into a drum not unlike the ones used in actual lotteries; however the worst teams (based on their regular season win/loss record) have more names entered into the drum thereby increasing the probability of being selected to have the 1st choice from the upcoming talent pool. The exact numbers of how many names the worst teams have in the drum is not important but the methodology is exactly what has been developed into the F-Shift Forecaster. The worse your teams regular season results were, the more that team has their name in the drum. Although this system of “weighting” doesn’t ALWAYS work, it worked perfectly this year, 2010. The Washington Wizards, who had one of, (if not the worst) regular season record, were randomly awarded the 1st pick overall. Second place went to Philadelphia and third place went to New Jersey. All 3 teams struggled in the regular season with poor win/loss records and because of the weighting approach the NBA uses, it gave these struggling teams the best opportunity to have 1st crack at this year’s star talent. The F- Shift Forecaster works in the identical capacity. What happened recently with respect to price moves and current market volatility is FAR more relevant than what happened say 10 weeks earlier. At the time of this writing, we are in the midst of some incredible market volatility. Daily price swings in both the DOW and NASDAQ are whipsawing even the most seasoned trading veteran. This CURRENT market environment looks nothing like it did a short 6-8 weeks ago. Recent market action is therefore far more relevant than older price action and the ability to model for those dynamics in the F-Shift Forecaster are what really distinguish this tool.
RATIO BREAKDOWN - CLICK TO ENLARGE
In fact, when modelling probable future outcomes, the forecaster compares weighted forecasts vs. non-weighted forecast results and it is in those comparables results (which would otherwise go unseen), that provide us with our ability to build accurate profiles. When re-sampling data, it is important to understand that we are NOT changing or randomizing the returns themselves but the ORDER of those returns in an attempt to gain a probable and statistical outcome 12 periods in advance. I say periods because as previously mentioned, you can populate the platform with daily, weekly or monthly data which is provided free from Yahoo Finance.
More information and screenshots will follow along with a number of 5 minute web tutorials on exactly how to use this incredibly powerful application This application is part of a suite of other applications all developed in Excel. For any additional information or to have the entire white paper sent to you, you can contact me directly at atlus1432@cogeco.ca or through the links provided via this blog.
Fulcrum Shift Trading
“The ONLY thing in trading you can control is how much you are willing to risk”
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Welcome to the new and improved Fulcrum Shift Trading Advisory blog
Fulcrum Shift Matrix White Paper
The Fulcrum Matrix® is an Excel based data mining application which profiles open-close relationships using a completely unique approach in an attempt to optimize trade entries regardless of the time frame one wishes to trade or time frame one wishes to hold the trade. Traditional technical analysis is not used in the final analysis as this is strictly a statistical or quantitative tool to refine ones entries.
The Challenge
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aps, in the traditional sense of trading are usually defined as an opening price which exceeds the previous day’s high or an opening price which opens below the previous day’s low. How then, do we do address a U.I. (underlying instrument) which, for example, were to have a hypothetical daily range of 6 points trading from 142-148, it then closes at a price of say 146, only to open the next day at 143? Once again the traditional technical analysis definition would not define this as a true gap given the previous days high and low were not breached by the current opening price. The Fulcrum Matrix® addresses this shortcoming which provides the trader, investor or institutional money manager definitive probable outcomes when such “intra gaps” occur, which by the way are far more frequent than the traditional gap (opening above yesterdays high or below yesterdays low). It of course also models the traditional definition of gaps as well. Using the Fulcrum Matrix® and its rules, a gap or “intra gap” (any change in price on the open relative to the previous day’s close) can technically be as minimal as .01. Generally speaking, something as minimal as a .01 gap open is not of real concern when considering initiating a trade but let’s return to the above example and assume we are analysing a stock which we are considering for a trade or investment. We will call the stock XYZ. A previous day’s range of 6 points would in most cases be considered substantial and closing at 146 is obviously near the upper end of the day’s range. How then, could one capitalize on the “intra gap” open the following morning? Whether your opinion were that the stock has further upside potential or one which is forecasting a drop in price from these current levels, would it not be beneficial to know the statistics behind such a close -open price relationship prior to committing your hard earned (or clients)capital?
The Solution
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sing a process which sub-divides the previous day’s range, the Fulcrum Matrix® introduces a hybrid LCD or “Lowest Common Denominator” whereby the next day’s opening price must fall within one of those defined ranges. The LCD is applied in a uniform approach to all historical data for any particular underlying instrument and the following days open price is analyzed within the context of which range it opens within. Statistical close-open “intra gap” analysis is now possible over a large data set which now can quantitatively guide you in determining probable outcomes and optimal entry points or ranges in which to execute your trade and or stop loss for an existing position.
click to enlarge
More information and screenshots will follow along with a number of 5 minute web tutorials on exactly how to use this incredibly powerful application This application is part of a suite of other applications all developed in Excel. For any additional information or to have the entire white paper sent to you, you can contact me directly at atlus1432@cogeco.ca or through the links provided via this blog.
Fulcrum Shift Trading
“The ONLY thing in trading you can control is how much you are willing to risk”
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