The financial world is full of big trends and trendy indicators, predictors of future market value. But, one would be hard-pressed to find one as wild as the Super Bowl indicator.
According to the “Super Bowl” indicator, a win by an American Football Conference team, like the New England Patriots, means stocks are more likely to see big bearish trends. The indicator, which was first introduced in the 1970’s, has an 80% accuracy rate according to Investopedia.
LPL Financial crunched the numbers further and found that in the year an NFC team wins, the average return for the Dow Jones Industrial Average is just under 11%, compared to just a 4.3% average return in the years an AFC team wins.
Theoretically speaking, this is interesting, and it sparks thought about probability, randomness, and cosmic forces beyond our control. But on the practical side, traders should ask the question, “Is this an indicator that I should utilize to capture big trends and utilize to risk your money?”
Putting aside the 80% accuracy rate of the above, the odds are good the market will drop substantially this year. For no other reason than the Schiller P/E ratio for the S&P 500 is extremely high. Shiller P/E at 28.6 is 71.3% higher than the historical mean of 16.7
Factoring in the current U.S. and global economic fundamentals, one does not see the precipitous danger. But, they are also not pointing toward momentous growth, which brings us to the Fed.
Janet Yellen will disclose their thinking next week. It would not be surprising to hear her say (once again) that the Fed is considering raising rates. Why? Perhaps it would be the big trends that led to an escalation in jobs and the slow rise in wages.
Combine an interest rate hike announcement with a market that has ridden big trends to new highs that may be too good to be true, and add the geopolitical wobbliness, and you have the ingredients for a snowballing effect in the market. One thing the market deems “bad” and we see a push of the panic button. Once the stampede starts, the market could easily see big trends to the downside and see a 10-15% fall rather quickly. It is that far out of balance.
While this still falls into the “possible” category, one thing that is fairly certain. According to historical terms, the market is due for a correction. The DJIA has climbed approximately 11% since the election. The “President Donald Trump Rally” looks to be weakening. When you take Trump out of the equation, there is no substantive reason for the recent market run in place since November. Which then leads to every credible market analyst pointing towards any reason it would continue.
The Patriots came away from last weekend’s game as champions as an AFC team. You can decide how much merit you will place in the unrelated “Super Bowl” indicator.
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If you want to find a more reliable way to analyze the markets, then look no further than VantagePoint Intermarket Software. It utilizes artificial intelligence to forecast market movements 1-3 days in advance with up to 86% accuracy. If you want a specific example, then check out the chart below of the E-mini S&P 500 that demonstrates how accurate VantagePoint can be.