Conditional Price Movement

Our two-plus month forecasts indicate naturally occurring shifts in sentiment that create tailwinds and headwinds for the markets. Shifts occur periodically and are described as changes between:

• Risk-on/risk-off
• Resilience/vulnerability
• Euphoria/panic
• Optimism/pessimism

We can also identify periods of irrational exuberance and strong animal spirits.

We exploit physical variables related to those described in the Federal Reserve Bank of Atlanta's 2003 working paper "Playing the Field."  We are able to forecast potential shifts in investor sentiment two to four months into the future. A shift between naturally-occurring optimism and pessimism acts as a catalyst for a dramatic price change when there is an economic need for a price change. 

Our Physics-Based Drivers of investor sentiment:

• Independent of and external to the markets, making them complementary to most investment strategies.
• Not tied to economics, fundamentals, or current events, but rather describe how investors are likely to react to new and events.
• Explain well over half of the variability in well-known momentum measures and technical oscillators, such as the 14-week RSI, for major stock indexes.

Our research is described in this Institutional Investor article. Additional background is found in this LinkedIn article. 

We offer three products to professional investors:

1. Two-Plus Month Outlook for US Equities with Detailed Precedents: We identify expected periods of market resilience and vulnerability over the next 2+ months. Resilient periods see the market recovering quickly from negative news and events, while vulnerable periods indicate a slower recovery, potentially leading to investor panic. We also provide objectively-determined historical precedents* for current conditions. These historical precedents have similar sentiment dynamics and provide relevant and actionable guides for the current environment.
2. Two-Plus Month Outlook for Widely-Used Momentum Indicators (e.g., 14- and 30-Week RSI) for Major Global Stock Markets: We currently create these for the S&P 500, DJIA, Russell 2000, Europe stock, UK stock, and Japan stock indexes. The forecast is for the RSI for the index, not the index constituents.
3. Consulting Engagements: We transfer our tools and algorithms to a client's quantitative team, accelerating the development of their own physics-based investment tools.

* We use the long useable history of the Dow Jones Industrial Average (Why DJIA?) for the historical precedents.