Analyzing Industry
March 16, 2016
4 Investors Walk into a Bar, Seeking Liquidity
March 19, 2016
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Enter the market score

Standard deviation across all stocks — Chart that raw and you get a bunch of spikes. ┬áTurns out if you inverse it (1/stddev) and plot the max of that over a time period, you get something interesting.

Looks to me that if this weird blue line goes down, be careful until it goes up. Of course, it’s not without its errors, as the following forest of spikes tracking decreases will show

Notice that the big spikes seem to get it mostly right. While the small ones are interesting, they are not as accurate.

What about the buildup of inventories?

Worthless, sadly. What about max days of inventory in any industry (i.e. the average inventory in the most built-up inventory business).

Also worthless. ‘Nuff with inventory as a market mechanism. It may be good for predicting doom on an individual level, but it totally blows on predicting the health of the market.
How about worst industry. That is, the average quarterly performance of the industry with the worst average performance?

When I checked the maximum of the worst industry over 63 and 126 days, that seemed predictive.

Notice how good it is at predicting the market tops. it’s competent at flashing 2’s and 3’s throughout the market madness, and sticking to 0’s and 1’s during calm or upwards markets. However, it’s not so good at detecting the END of market madness, in that it flashed 0 a couple of times during the dot com crash. It also flashed an alarm in August of 2011, AFTER most of the correction, and the alarm lasted just long enough to keep you out during an upwards snapback that undid much of the crash.┬áSo this indicator needs more work. Stay tuned: We will work, in future articles, on indicators to detect the end of market madness (referred to as the “Zombies rising” score), and on enhancements to the “Ded Bob Sco”, to make it better at predicting impending market doom.

Oh, and what’s this “best industry” line? It’s a teaser, and a likely part of our upcoming “Zombies rising” formula.

Henry Crutcher is an avid family guy, board gamer (think Settlers of Catan, Puerto Rico, etc), computer nut, and all around geek. Hailing from Louisville, KY, he has noticed that the weather in Louisville is remarkably similar to the weather in Atlanta, GA despite the 407 miles that separate them. He has two daughters, one cat, and lots of trees. He loves the Miles Vorkosigan series from Lois McMaster Bujold, for its mix of SF, comedy and insight into how people work. He also comsumes more than his fair share of cheesy business/economics books, such as The Ascent of Money by Niall Ferguson, or Farewell to Alms, by Gregory Clark.

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