A Budding Romance: Finance and AI

What Chuck Norris Thinks About the S&P

"Chuck Norris played Russian Roulette with a fully loaded gun and won"

-Unattributed

Unless you’re Chuck, us mere mortals need to think about probabilities. This week, we have a new forecast for the next five days in the S&P. As always, we project a range of outcomes based on similar conditions in history. As today’s conditions change, so do the probabilities.

Explanations are Not Predictions

"Sane people are expected to have sensible-sounding reasons for their actions."

-Philip E. Tetlock, Superforecasting

Why did Chinese shares fall by 7% today? The news is filled with explanations – weaker manufacturing data, new circuit breakers, weakening yuan – sketching a compelling story that makes it appear like we saw it coming. It’s easy to confuse the power of explanation with prediction.

Twitter (TWTR) – The Top 1 Month Projection Out of All U.S. Stocks

"Just setting up my twttr"

-CEO Jack Dorsey, March 21, 2006

Twitter Inc has had an interesting 2015 to say the least. The stock was trading around $51 a share when they announced (or data science firm Selerity leaked via a Tweet?) their Q1 results. The results for the quarter didn’t miss the mark by much, but the forward guidance was adjusted down and the stock took a 25% buzz cut in the next two days.

In October, Jack Dorsey announced he was coming to the rescue and rejoining as CEO, even though he was already the CEO of Square which went public in November. The stock rose 20% on the news, and then a week later the company announced their first ever layoffs and the stock has continued to slide from there.

2016 Vacation Guide (The Currencies That Will Stay Depressed Against the USD)

"A bank is a place that will lend you money if you can prove that you don’t need it"

-Bob Hope

The Fed finally did it. Janet and the gang raised rates for the first time in nearly a decade, confident that the U.S. economy could continue to rebuild with less effort from the central bank.

This is impressive in a way, and concerning in another, that rates at home are increasing while the other major economies continue to provide financial stimulus to prop up their struggling economies. The central banks of Europe and China are fresh off easing measures and the Bank of Japan has kept their rate at 0% since 2011.

We’ve Seen This with Crude Before. Expect the S&P to Rebound This Week

"Formula for Success: Rise early, work hard, strike oil"

-J. Paul Getty

This quote from the founder of the Getty Oil Company may no longer be relevant. Crude Oil prices are down about 18% since November 25th, and now hover around $35 a barrel. In Saudi Arabia those levels are still profitable to drill, but in North America they are not.

The largest Energy Sector ETF, the Energy Select Sector SPDR (XLE) is down almost 10% since December 1st and the Sector has been a huge drag on the broad market. It has been especially bad this past week with the S&P 500 dropping about 4%. Is there any relief coming?

The Last 6 times Janus traded like this?

"Whenever I read the newspaper, I say to myself, ‘At least my wife loves me.'"

-Bill Gross, Janus

When Bill Gross announced he was leaving PIMCO to join Janus Capital Group on September 26, 2014, the stock jumped about 43% in one day closing at $15.89.

We had seen similar extreme moves in Financial Services stocks historically, and EidoSearch was able to analyze the trading pattern (reactions to similar moves historically) to accurately predict how the market was likely to react over the next month. See our Market Call from September 29, 204: The Knowledge – What’s Next For Janus

Our Top 3 Trade Ideas for This Week!

"Well, you’re better than any player I ever had. And you’re the best damn hitter I ever saw. Suit up."

-Pop Fisher, The Natural

By popular demand, for this week’s market call, we decided to look across all U.S. Equities to find the best long ideas.
We compared the current trading patterns for each stock to its peer group historically to gain information about the markets response to similar environments, as well as statistics on the probable outcomes for the next 5 days.

Nat Gas Set for Winter Rebound?

"Oh, the silent majesty of a winter’s morn…the clean, cool chill of the holiday air….a (donkey) in his bathrobe, emptying a chemical toilet into my sewer "

-Clark W. Griswold, Christmas Vacation, 1989

Like Clark Griswold’s storm sewer, Natural Gas prices are at toxic levels that would even depress cousin Eddy (unless he heats the RV with Nat Gas). After peaking above $6 in February of last year, prices are streaking back down towards $2 again. Will the colder weather prop up prices?

Predictive Analytics and the Week’s Best Trade Ideas

"Well, Dick, here’s the deal. I’m the best there is. Plain and simple. And nobody can handle my stuff. I’m just a big hairy American winnin’ machine. If you ain’t first, you’re last. You know, you know what I’m talkin’ about?"

-Ricky Bobby, Talladega Nights, 2006

One of the greatest benefits we see at EidoSearch, and with our new methodology for prediction, is the ability to quantify the value of information contained in data sets and especially Big Data. For example, is it even worth spending months of time analyzing traffic patterns in parking lots at shopping malls? The other great benefit is that once you’ve identified that valuable information exists in a data set, you need the ability to interrogate the data with speed and accuracy to generate meaningful analytics and ongoing signals to help drive business decisions.

Lumber’s Going Higher….And Homebuilders?

"Walter Fielding - It doesn’t make any sense, why would somebody be selling a million dollar house for a hundred thousand? Jack - Who knows? A divorce, loan sharks, a scandal. The point is you get to capitalize on another human being’s misfortune. That’s the basis of real estate. So, do we have a deal?"

-The Money Pit, 1986

Lumber is cheap right now….relatively speaking anyway. After peaking at over $400 in March of 2013, prices have been in a steady decline. They hit a four year low of around $215 in late September, and after a mini rebound in October, they are headed down once again.