Giants’ win bullish for Wall Street?

There’s no shortage of statistical analysis on Wall Street and while some of the research sheds light on patterns worth paying attention to, that’s not always the case.  In the early 1990s, for example, a professor at the University of California-Berkeley School of Business noted an amazing 99% correlation between the performance of the S&P 500 over a 10-year period and the combination of cheese production in the US, butter production in Bangladesh, and sheep population in Bangladesh. The cheese-butter-sheep/S&P 500 relationship went bust in 1994.

A predictor with a bit more staying power is a National League win in the World Series. Last night the National League’s San Francisco Giants clinched the pennant with a 3-2 win over the American League’s Kansas City Royals. Historically, the S&P 500 has risen 90% of the time in QTR 4 when that happens. And since 1950, the calendar year following National League wins have been bullish for the Dow Industrial Average 83.9% of the time. A few years ago Capital IQ determined that the number of games required to wrap up the World Series is correlated with the S&P 500’s return the following year with fewer games yielding better performances. This year, the Giants-Royals battled to a seventh and final game.

Boston Red SoxIt’s miserable being an investment adviser and a Boston Red Sox fan. True, the Red Sox have won eight titles in World Series history, but the first Boston title of my life time didn’t occur until I was in my 40s! When they do win, it usually doesn’t bode well for the stock market. Wall Street has been bearish in years following a Red Sox triumph a staggering 62.5% of the time. Even worse, the Sox hold the record for the biggest S&P 500 decline after a World Series victory: -38.9% in 2008. (The Boston Red Sox play in the American League.)

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blo

 

Unknown unknowns

The Four Horsemen

Former Secretary of Defense Donald Rumsfeld once remarked, “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

Up until very recently investors shrugged off geopolitical turmoil in Ukraine and the Middle East, economic slowdown in Europe and China, and the approaching end of the Fed’s QE3 program on October 29. (At the conclusion of QE1 and QE2 the market suffered a 15-20% correction, but stopped short of falling into official bear market territory.) But now the Ebola epidemic has landed on our shores and it’s spreading. Recent CDC attempts to contain the virus have not instilled investor confidence. This particular Ebola outbreak is proving to be particularly severe and complex. Wall Street is now worried the virus could mutate or become airborne, adding to the human and economic toll. As a result, US stocks are tanking while bonds and gold benefit from the flight to safety. I moved my managed account clients and newsletter subscribers incrementally to the sidelines between September 26 (75%) and October 1 (remaining 25%). These trades weren’t emotional knee jerk reactions; rather, my sell-to-cash moves happened only after specific technical parameters had been met.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. ♦

 

General’s leading, but where are the troops?

Chart of the DayOne gauge of the health of the market is to track how the majority of stocks are trending. So far in 2014 the large-cap S&P 500 has racked up record high after record high, but the small-cap Russell 2000 isn’t following suit. Year-to-date the Russell 2000 (“troops”) is in negative territory while the S&P 500 (“general”) is up 8.2%. Stock market leadership is narrowing – a potential red flag.

This interesting graph from Chart of the Day shows the performance of the Russell 2000 Index going back to 2002. The red line represents overhead resistance, while the green line is support. Taking this longer term perspective, the Russell 2000 is sitting at an important inflection point.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. ♦