THIS month we saw three potentially critical events that should significantly impact local stock prices. The Philippine Statistics Authority announced that the inflation rate was 4.5 percent in April. Then the data for the first quarter of 2018 was released with the Philippine economy growing by 6.8 percent from a year earlier. Last, the Bangko Sentral ng Pilipinas raised interest rates by 25 basis points to 3.25 percent for the first time since 2014.
Official members—like me—of the “Society of Stock Market Geniuses” (SSMG) can certainly analyze what that all means. Over several bottles of fine wine—far too costly that ordinary investors could never hope to afford—we have the answers. However, as with every secret group of experts, there is a blood oath that this information can never be revealed under penalty of lots of bad things happening.
Perhaps then the only thing that mere stock market mortals can do is Google the phrase Stock Market Prediction Methods. Granted there are about 500,000 results, but think of how educated you will be once you read all the links. One I found that caught my interest was an article on one of the Kings of financial news, CNBC. The title was “An indicator with a nearly perfect track record is predicting a stock market pullback.” This was written on August 28, 2017.
It said: “The S&P 500 is set for about a 4-percent to 5-percent decline,” Fundstrat analyst Tom Lee says. Fundstrat is “an independent research boutique, providing market strategy and sector research.” Mr. Lee wrote in a note to clients: “If historical precedent applies, the S&P 500 is set for about a 4-percent to 5-percent decline in the next month toward 2,300 or so.” As of the close on the date of publication, the S&P 500 index was at 2,444.
Last September 28 the index closed at 2,510 (up 2.7 percent). Thirty days later the index was up 5.6 percent and by the end of 2017, the S&P had moved to 2,687 for a total increase of 10 percent. So much for the “Indicator with a nearly perfect track record.”
In fairness to Mr. Lee, in his interview he did give three reasons to be optimistic about the markets. And he did reveal “The Indicator.” “Last Friday the number of stocks trading above their 200-day moving averages fell to exactly 50 percent. This is the tipping point where Lee says the S&P 500 will begin to fall. Lee says that in 23 of the 24 instances of stocks slipping below their 200-day moving average, the S&P 500 index fell 4 percent or more.”
That is why we at SSMG are really, really careful about sharing our secret analysis because the average investor might think that since something happened 23 out of the last 24 times, it should happen again. We know that is not necessarily true. In fact, that is why we are geniuses.
Strangely, there are no Google links for the phrase “Bad Stock Market Prediction Methods” maybe because even the “best” can make you lose plenty of money.
The Vanguard Group with over $5.1 trillion in assets under management tested 16 different fundamental analysis methods for predicting stock price. They used one-year-ahead and 10-year-ahead horizons with data going back to 1926.
Their conclusion was that most of the variables were about as helpful as asking your dog for one bark or two to tell you whether the market was headed up or down. I always knew my official SSMG crystal ball and a bottle of rum made more sense. But I do consult my pure-bred-from-France toy poodle Jessie.
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.