What Happened in 2014 Globally?
I Know First is a financial services firm that utilizes an advanced self-learning algorithm to analyze, model and predict the stock market. The algorithm predicts the flow of money in almost 2000 markets across a range of time frames (e.g., 3-day, 1-month, 1-year). The algorithm's predictability becomes stronger in the 1-month, 3-month, and 1-year horizons, so it is particularly useful as a long investment tool, albeit that it can also be used for intraday trading.
In the article "Stock Market Forecast For 2015 Based On A Predictive Algorithm" from December 17th, 2014 I Know First was very bullish for all US equity markets going into 2015; however, since then the S&P 500 (NYSEARCA:SPY) have gone up by 4.4%. The algorithm updated the growth projection for US markets in this forecast to stable with low volatility. This makes global markets much more attractive, and brings new strong players.
The top 10 world indices to buy hit ratio in 2014 was 100%. Not only that, the average return was 11%, an impressive achievement. On the left is our original 1 year projection from 2013 and on the right our performance review.
So who were the top performers? Indeed, the ISEQ (reflects the Ireland stock exchange) rose a staggering 15.24% since the forecast date, and performed in accordance with the algorithmic prediction as the highest signal going into 2014. Although not the top signal, the top performer was the NASDAQ100 (NASDAQ:QQQ) gaining 21.59% since the forecast date, reflecting a strong year for the technology sector. The S&P500 saw its index go up 14%, closing a very strong year for the US equity markets. The Israeli stock index, the TA100 (NYSEARCA:EIS) performed well with a 9.7% gain, followed by Canada GSPTSE (NYSEARCA:EWC) that rose by 7.71% and the Spanish Continuous Marke0t IBEX (NYSEARCA:EWP) that rose by 7.03%. The bearish forecast for Russia s RTS index (NYSEARCA:RSX), index that fell by -42.4%, was perhaps the largest event. Many of the underlying factors were discussed in the article "Russia Shocks The Markets: Fundamental And Algorithmic Analysis" we released after the interest rate hike by the central bank. All these prediction were made by a state of the art predictive algorithm. They are not based on a fundamental or technical analysis, rather an algorithmic analysis. The algorithm forecasts all markets (equity, commodities, interest rates, currencies, indices), and thus a market prediction includes correlative elements to anything which could affect the market. Gold (NYSEARCA:GLD), oil, USD, and thousands of other factors have to be taken into account when making an algorithmic analysis for an index. While many believe 2015 will be another strong year for US equities, we believe differently and can't reinforce enough the need to begin looking at other markets where the algorithm projects much stronger growth.
The signal represents the predicted movement direction or trend, and is not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or "fair" price. The signal can have a positive (predicted increase) or negative (predicted decline) sign. The heat map is arranged according to the signal strength with strongest up signals at the top, while down signals are at the bottom. The table colors are indicative of the signal. Green corresponds to the positive signal and red indicates a negative signal. A deeper color means a stronger signal and a lighter color equals a weaker signal.
The predictability indicator measures the importance of the signal. The predictability is the historical correlation between the prediction and the actual market movement for that particular asset, which is recalculated daily. Theoretically the predictability ranges from minus one to plus one. The higher this number is the more predictable the particular asset is. If you compare predictability for different time ranges, you'll find that the longer time ranges have higher predictability. This means that longer-range signals are more important and tend to be more accurate.
World Indices Forecast Tables and Map
The algorithm projects that US equity markets will have very little volatility and growth next year, on the other hand Russia will have very big volatility and might go either way. The three most attractive markets to invest in are Singapore (NYSEARCA:EWS), India (NYSEARCA:EPI) and Taiwan (NYSEARCA:EWT). The signal of 20.65 and predictability of 0.53 suggests Singapore as the top pick out of the three. The two markets to avoid are Brazil (NYSEARCA:EWZ) and China (NYSEARCA:FXI), which have a very bearish outlook going into 2015
I Know First Research is the analytic branch of I Know First, a financial startup company that specializes in quantitatively predicting the stock market. This article was written by Daniel Hai, one of our interns. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.