Consumed by a rally

July 19, 2015 09:00 AM

We’re now more than six years into this bull market rebound from the financial crisis, and the S&P 500 doesn’t seem to be in a hurry to relinquish its place around all-time highs. This is in the face of tepid corporate earnings in the last quarter, a strong dollar affecting our ability to export goods and the all but certain upcoming rate hike.

Good econometrics like pending home sales and unemployment figures continue to support the rally and keep reminding us that the U.S. economy is a far safer bet than most other options. Not exactly solid footing, and with each passing month the question still remains, “When will this market run out of steam?” 
It may be near. 

This year, through the beginning of June, the market was up only 2%. Given the headwinds above, we should probably expect that outperformance will come from sector and stock picking and not from broad market exposure. With that in mind, EidoSearch deployed our numerical search engine to find the sector with the best statistical upside vs. its peers, and then analyzed stocks within that sector that are poised to outperform through yearend.

For the sector analysis, we took the current six-month price patterns for each of the nine major sectors (Morningstar Sector classifications) and searched through a few decades of history for the most similar instances. By capturing the next six-month returns of these historical matches, we’re able to identify the actual return distributions for the current patterns and gauge the most likely return scenarios. Consumer Cyclical’s are at the top of the class.

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About the Author

Dr. Steven Zhang is the CEO at EidoSearch.com, a  Ph.D. in electronic engineering and an internationally renowned expert in information processing technologies. His expertise is in the areas of signal processing, multimedia content analysis, computational intelligence, pattern classification, as well as, applications in bioinformatics and finance. 
@EidoSearch