Unexpectedly Intriguing!
October 17, 2016

From all appearances, investors have indeed shifted their forward-looking focus to the current quarter of 2016-Q4 in setting stock prices.

That's a change from the previous week, where the trajectory of the S&P 500 suggested that might be the case, but which wasn't as clear cut as we find the data indicates in Week 2 of October 2016.

Alternative Futures - S&P 500 - 2016Q4 - Standard Model - Snapshot on 2016-10-14

As you can also see in the chart, during the next week, we're going to once again have to cope with the echo effect that arises due to our standard model's use of historic stock prices as the base reference points from which we project the future and the occasional outsized volatility of those historic prices.

This time however, we're going to keep the modified model that we developed ahead of the last such major echo event in our toolbox and will instead test the simplest method that we can think of for addressing the echo effect in our standard model's projections. That method will simply involve connecting the dots for the trajectories associated with each future quarter to which investors might turn their attention on either side of the period where we know in advance that the accuracy of our standard model's projections will be negatively affected by the echo effect.

For our alternative futures chart, that would mean adding four additional lines to connect the dots associated with each alternative trajectory that we display during the upcoming echo event, but we're going to make a simplifying assumption (or prediction, if you like) so that we'll only show one line. We're going to assume that investors will remain focused on 2016-Q4 in setting stock prices for the next five weeks, so we only have to go to the trouble of connect the dots on either side of the echo for that single trajectory.

Alternative Futures - S&P 500 - 2016Q4 - Standard Model - Snapshot on 2016-10-14 - Connected Dots for 2016Q4

The shaded red region on the chart indicates the typical range of day-to-day volatility that we would expect stock prices to fall if investors do indeed focus their attention on 2016-Q4 in setting stock prices.

The reason we're doing this is because it occurred to us that the modified model we developed produced results that would be little different from using this simpler approach. After the echo event has passed, we'll compare what that method would have forecast with the simpler model and see if simpler is better.

In the meantime, here are the headlines from the week that was, which provide the basis for our simplifying assumption.

Monday, 10 October 2016
Tuesday, 11 October 2016
Wednesday, 12 October 2016
Thursday, 13 October 2016
Friday, 14 October 2016

Elsewhere, Barry Ritholtz summarizes the positives and negatives of the week's economic and market news.

Labels: ,

About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Stock Charts and News

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links

Useful Election Data
Charities We Support
Shopping Guides
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.