Stock Market Forecast Update
I have updated my Stock Market Forecast page with the latest systems I’m testing. You can read the explanation there in detail. The quick summary is that I’m doing two primary models (4-week and 13-week), both using a linear regression model (a statistical way of finding a straight-line relationship between a set of variables and a calculated outcome) that involves four different technical analysis data points.
I graph the stock market forecast for each model over the coming 4-week or 13-week period.
Lastly, I will issue two weighted combination forecasts each week in my update post, each of which makes only one “official” forecast for the record book. One represents a weighted average between where the two models think the S&P 500 will close this upcoming week. The weights are based on how well each model explains the ups and downs of the S&P 500 – that is, using the “r-squared” for the regression analysis. The other is a “Headline Adjusted” model, which tries to account for the fact that extreme and unforeseen events can throw off the models. So, I remove data that seems affected by such effects and keep the more pure data. This model will also make only one forecast, one week in advance.
Performance of Last Week’s Forecast
Weekly Direction of the S&P 500
Correct: 4-week / Weight-Adjusted Combo
Incorrect: 13-week / Headline-Adjusted
Accuracy of the Weight-Adjusted Combination Models
Regular Weight-Adjusted Combination: 0.99 percent too optimistic
Headline-Adjusted Combination: 1.13 percent too optimistic
Accuracy of Individual Models
4-week Model: 0.33 percent too optimistic
Correct Prediction of S&P 500 Direction thru Last Week’s Close: 3 out of 4 predictions
13-week Model: 1.16 percent too optimistic
Correct Prediction of S&P 500 Direction thru Last Week’s Close: 10 out of 13 predictions
Estimated Effect of Headlines on Current Market Value
NOTE: This is based on a calculation I do after running the current week’s headline-adjusted forecasts.
4-week Model: Negative effect of 0.7 percent (down 1.9 percent from last week)
13-week Model: Negative effect of 1.3 percent (down 1.2 percent from last week)
Notes: The headline effect went down an average of 1.6 percent from last week, so headlines are artificially holding down the markets by about 1.0 percent right now.
Stock Market Forecast Summary for Upcoming Week
Here’s the breakdown: