Comparing Historical Prices: Part II ... a continuation of Part I
motivated by e-mail from Ron McEwan

My brother-in-law and I had invested in a stock whose recent performance was pretty lousy, so I thought I'd try to predict when (if?) it'd recover and ...

>And you dragged out that comparison spreadsheet from Part I, right?
Yes ... except that it matched the past month with some historical month, but didn't give me a prediction.
Then I remembered a modified version that Ron sent me, so I modified the spreadsheet to include a price prediction for the next week or three.
My assumptions went like this:

  1. Whatever happened in the past was a result of investors reacting to the situation at that time.
  2. If the current gyrations in the stock price occurred in the past, then we'd expect investors would react in the immediate future as they did in the past.
  3. So we examine every 1-month period over the past umpteen years to identify that month which matches the current month.
  4. Then we stare in awe and amazement at the subsequent stock behaviour.
The spreadsheet looks like this (and you click the picture to download):

You can see that the month starting Jan 24, 2007 is the "best" match to the current month and, since investors are quite predictable, see how they reacted in the following month?
So we can now confidently predict that, although XOM closed today at $82.49, in ... let me count the days ... 18 days it'll be at $86.85 so we can get ready to sell.
For another example, I looked at my lousy performing stock. It's now at $67.64

Based upon the "best" historical match I confidently predict that in ... let me count the dots.

Okay, here's my prediction: In 10 days it'll be at $73.13

... and I'll make a bundle.

Here are a few more predictions, comparing the month ending March 7, 2008 with some historical month ... then predicting the following month:

>That's a lot of B.S. ... and you actually believe that stuff?
B.S.? Is that Black-Scholes?