Analyze This

Ever notice that Wall Street analysts are a lot like sports announcers?  Both chatter continuously no matter what the action on the field.

In a quiet moment, for example, you might hear a baseball announcer exclaim “The last time a left-handed hitter faced a fresh pitcher in the sixth inning he grounded out to retire the side.”  My first reaction to such a statement is “Wow,” this announcer really knows his stuff.  But after two or three precise analogies, I suspect my learned announcer is channeling a data jockey from the back room.

Same is true of market analysts.  This just in from Deutsche Bank: “History suggests that with the duration of the rally already in the top 10% by duration, the probability of seeing a negative shock is high.”

Source: Deutsche Bank via ZeroHedge

Scary chart, eh?  What’s missing, however, is a reckoning of what happened after the 90th day.  A quick test of the four months listed (Sep-99, May-79, Oct-70, and Feb-58) reveals that the market was consistently higher three months later, by an average of 10%.

This observation, of course, is not conclusive.  But it does suggest that more testing is required if this indicator is to be of any use.

Bottom line?  Beware of glib statistics that just happen to match current market conditions.  The S&P 500 is the most over-analyzed data series in the history of humanity.  Some market indicators are indispensable, but important signals are rare events.  Don’t expect a profound revelation to pop up in every inning of every game. 

By | 2017-03-20T10:53:08+00:00 March 20th, 2017|Categories: Market Strategy Report, Uncategorized|0 Comments

About the Author:

Mark Ungewitter is a Senior Vice President & Investment Officer at Charter Trust Company. He was formerly Director of Portfolio Management at Investors Bank and Trust in Boston, Massachusetts. He holds an M.S. from Bentley University and a B.S. from Massachusetts College of Liberal Arts. He is a member of the American Association of Professional Technical Analysts.

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