Map of Stock Trends

The Stock Trends Inference Model (ST-IM) is formulated on the question: what do trend and momentum indicate about future changes in price? Corollaries of this question are: if a stock price has been rising, will it continue to rise? If a stock is trending down, will it reverse the trend in the future? Will a stock experiencing price momentum persist, or will it come crashing down? If a stock has been in a bullish trend for over a year, will the trend likely expire soon? If a momentum stock has high volume will it subsequently collapse? If a bearish stock advances on high volume, does this signal the beginning of a reversal? In short, we ask whether past price changes tell us anything about the direction of future prices.

Of course, technical analysis is a discipline derived from the assumption that, yes, past price patterns repeat and with careful analysis we can time the market according to proper responses to these patterns. Critics of this approach to market timing abound, but there are many scientific research papers that have evaluated the price momentum factor. Generally, it has been exhibited in this research that momentum as a sustainable market anomaly exists, although its time frame is generally longer-term - evidence that damns technical traders focused on short period time frames.

Stock Trends analysis is focused on long-term trends - not multi-year long-term, but multi-month long-term. It is designed for the swing trader, or position trader, who wants to capitalize on the momentum factor and generally expects to hold a position for periods of months - sometimes years if the holding is a low volatility stock.

The Stock Trends Inference Model generates probabilities of future returns for individual stocks and ETFs to exceed a base expectation of returns for each of the following periods: 4-week (0% base return), 13-week (2.19% base return), 40-week (6.45% base return). These probabilities are derived from statistical inferences of returns already observed over the 30-year history of Stock Trends indicators. Samples are taken of stocks that share the same Stock Trends indicator combinations, and then post-observation returns are measured for each of the three periods defined above. The model looks to turn past observations of similar market characteristics into a probabilistic sample space. It looks to answer the questions we set out to answer.

Each week individual trends of about 7,000 North American stocks and ETFs are evaluated by this model. The resultant probabilities are ranked in specific reports available to Stock Trends Weekly Reporter subscribers. The probabilities are also ranked in the Map of Stock Trends.

The Map of Stock Trends is a treemap that is structured in a hierarchical order. First, it is categorized by sector, then by industries within each sector. Then each industry is categorized by Stock Trends indicator. Within the industry trend category, stocks are ranked by their probability of beating the expected return for each of the 13-week and 4-week periods going forward. The 13-week probabilities are ranked spatially - the stocks with a higher probability of having a return greater than the base return (2.19%) occupying larger cells in the upper left quadrant and stocks with lower probabilities occupying progressively smaller cells ordered across the treemap into the lower right quadrant.

The 4-week probabilities of beating the base return (0%) are ranked by colour, with the darkest green hue representing the highest probability, the darkest red representing the lowest probability, and gradient shades between denoting their ranks between. Darkest green cells in the upper left quadrant represent stocks with the best expected returns in the group. Darkest red cells in the lower right quadrant represent stocks with the lowest expected returns in the group. Each grouping - sector, industry, and trend - illuminate the relative 4-week probabilities of these aggregates, with bullish groups in dark green, bearish groups in dark red, and relative hues ranking those in between.

Separate Maps of Stock Trends are published for each of the NYSE, Nasdaq, Amex, and TSX. Subscribers to Stock Trends Weekly Reporter will find these Maps of Stock Trends in the Member (subscriber-only) area.