Economic indicators predicting stock market?

Thank you all for your suggestions...

I am not trying to time the market using the fundamentals. I am sure that there are people who can do that, and we can find them on Forbes list. I am not there :( yet :D

What I am trying to do is to develop a system that will give me the probabilities of the market direction for the next quarter, 6 months or a year based on economic indicators. I will still use my 100% mechanical system to trade, but the position sizes will vary not only based on short-term volatility, but also on a set of probabilities given by the economic indicators. If the short-term system gives me a buy signal, but the long term one (developed on econ indicators, market interrelationships, etc) favors short side, I will still go long, but on a smaller scale.

May be the idea is absurd...

BTW, M3 idea sounds interesting, what is the rationale though?

DVB
 
Quote from DVB:

Thank you all for your suggestions...

I am not trying to time the market using the fundamentals. I am sure that there are people who can do that, and we can find them on Forbes list. I am not there :( yet :D

What I am trying to do is to develop a system that will give me the probabilities of the market direction for the next quarter, 6 months or a year based on economic indicators. I will still use my 100% mechanical system to trade, but the position sizes will vary not only based on short-term volatility, but also on a set of probabilities given by the economic indicators. If the short-term system gives me a buy signal, but the long term one (developed on econ indicators, market interrelationships, etc) favors short side, I will still go long, but on a smaller scale.

May be the idea is absurd...

BTW, M3 idea sounds interesting, what is the rationale though?

DVB
More...

its not absurd its just hard to do since the market looks ahead 6 months to a year.
if you want to look at something look at the yield curve. whenever you get a flat or inverted yield curve its been bad for the market. a steep yield curve is a favorable enviroment.
as far as fundamental guys on the forbes list. other than buffet most of those guys are insiders of a public company not traders or investors. not the same.
 
DVB,

do a search on my name, and you can pull up my forecasts of earnings, EPS and P/E ratios, charts included. . of the future for the next 13 weeks on average.

i think that is what you are trying to accomplish. .

sg
 
DVB,

I agree with what you are trying to do; I do the same thing in the forex markets.

In the current issue of Futures there is an article discussing the futility of using economic indicators for trading; I havn't read it but I scanned it and it seems to be talking about using them for timing, which I think is a losing proposition. I think using it as a general road map is beneficial to trading when combined with a good mechanical approach.

Try finding a copy of Jack Schwager's "Schwager on Futures: Fundamental Analysis." There is a section on stock market models and is an excellent book overall.

Among his suggestions are earnings growth, P/E, M2, bond prices, and setiment indicators (try Market Vane or the other two reported in Baron's).

www.stlousfed.org is a great place to find US econ data.

Good luck
 
I read the article yesterday. The irritating thing is that the author did not provide any calculations, any statistics ... without numbers and testing it is just a story-telling. How can one make any conclusions by just looking at two charts?

SG: Thank you for your comments, I will definitely go over your previous posts. You've mentioned that you found correlations b/n weekly earnings & SP500...interesting

Hanseng: thanks for the books recommendation

Regards,

DVB
 
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