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

July 12, 2011

(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:


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

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