Will the stock market crash again; prediction dashboard (March 31, 2020)
The stock market has rebounded somewhat from the initial Covid19 Coronavirus shock. But will the market crash again? Or will it recover? Which way will the market go?
I have built an automatic-updating dashboard tracking Covid19 trends using Google Sheets. Using that same setup, I now present to you a stock market "predictor". It too uses Google Sheets to pull data daily and automatically, this time using the googlefinance() function. Some browsers have issues with showing embedded dashboards, so use the direct link (here) if needed.
The model used in the dashboard would be a first step in a prediction model if you believe there is information in doing technical analysis. While I think there are some uses for technical analysis at times, in particular during times where information shock is minor, this is not the case now. Instead, the dashboard and its prediction should be interpreted as is. I.e., this dashboard uses the SP500 price history from Jan 1, 1970 to March 25, 2020 and finds periods with similar volatility patterns over a 6 day period. It tells you from history, given say daily % change of SP500 of -4%, -3%, +9%, +1%, +6%, -3%, what period in the past has this similar pattern, and how the SP500 subsequently performed over the next 30 business days. The dash provides some possibilities of what can happen going forward since it has happened in the past. Because I use a 6-day period, square error can be quite high and that's something to be mindful of. Matching uses OLS concept of minimizing least square error, and a square error of 64 implies the sum of the 6-day differences are roughly 8% or an average of 1.3% difference per day.
Here's the embedded dash. Again, viewing it at full screen or opening it in a separate tab (link) works best.
Update 20200410. An opinion piece from Mark Hulbert on the same topic. He uses a different aspect of the historical data (days before a bear market ends) to make his prediction.