A surprising(?) prediction about the S&P 500

July 12, 2011
By

(This article was first published on Revolutions, and kindly contributed to R-bloggers)

Financial analyst Greg Troccoli was a lone wolf when he predicted in July 2010 that “If the [S&P500] Index held at or above our proprietary support zone (1000.00- 950.00 region), it would eventually trade to a new historical high within 12 - 18 months (July- December 2011 timeframe)”. For reference, the S&P500 all-time high was 1565.15, and it closed today at 1,313.64 -- so exceeding the record isn't outside the realm of possibility. But was Greg Troccoli really out on a limb when he made that prediction a year ago?

Pat Burns of PortfolioProbe looks at how likely Troccoli's prediction was using a simulation in R: simulate the S&P (based on it's historical behaviour over the last 10 years, say), eliminate those simulations that drop below Troccoli's support zone threshold, and then count those simulations that hit a historic high:

Spxpred125long

Given those conditions, Pat estimates the chances of Troccoli's prediction coming true at around 25% (although that depends on how much S&P 500 history you use for the simulation). So, not so far out on a limb after all. See the full analysis and the simulation code in R at the link below.

PortfolioProbe: Testing an S&P 500 prediction

To leave a comment for the author, please follow the link and comment on his blog: Revolutions.

R-bloggers.com offers daily e-mail updates about R news and tutorials on topics such as: visualization (ggplot2, Boxplots, maps, animation), programming (RStudio, Sweave, LaTeX, SQL, Eclipse, git, hadoop, Web Scraping) statistics (regression, PCA, time series, trading) and more...



If you got this far, why not subscribe for updates from the site? Choose your flavor: e-mail, twitter, RSS, or facebook...

Tags: ,

Comments are closed.