Stats, Experience and a Rebound for Natural Gas

Kent Brockman: Mr. Simpson, how do you respond to the charges that petty vandalism such as graffiti is down eighty percent, while heavy sack beatings are up a shocking nine hundred percent?

Homer Simpson: Aw, you can come up with statistics to prove anything, Kent. Forty percent of all people know that.

If you read last week’s market call, you are now convinced of the impact that predictive analytics is able to deliver in providing return probabilities to enhance trade and investment decisions for every investor.  Or at least forty percent of you are.

Our unique technology, for the first time, is able to look at all price trends occurring for the securities an investor cares about and provide probable return distributions.  This information has impact.  We’ve proven it through 7.6 trillion pattern comparisons and millions of predictions, and we have quantitative clients that take feeds of our raw data and trade it to generate alpha.

For the majority of investors who are not systematic, the predictive analytics and probabilities can provide a meaningful edge but incorporating the data into their core investment process and workflow is the challenge.  We get it, no matter how impressive the technology, the information needs to be easily integrated by Portfolio Managers, Analysts and Traders that get multiple hundreds of emails, voice mails and IM’s daily.  And not only easy to access, but viewed in a way that allows investment professionals to combine it with other data points and to be able to apply their experience to lever up or down the importance of that data.  A black box signal does not cut it.

So here’s a crack at a meaningful projection with a second layer of detail.  The 1 month forward projection for Natural Gas  (NG) (chart below), based on the current 3 month price trend, is quite positive.  The average return profile of the most similar historical instances of the current price trend is 6.3% and there is much greater upside than downside in the next one month:

Let’s dig into some of the details that our clients find useful in applying their own logic and experience.  Per the view below, we’re highlighting a few key things:

• –  We found 50 similar instances of the current 3 month price trend in the history of Nat Gas going back to 1990 (results are statistically significant)

• –  Of the 50, Nat Gas is up almost 2/3 of the time (64%)

• –  In the timeline, you can see there is good spread of these instances, meaning investors have reacted consistently positive to this price trend over the past 25 years in a range of environments

You can also see the most dramatic up and down occurrences, as well as specific historical analogs or comps (7 of the 50 are shown here) where investors can quickly determine what they consider from experience to be similar environments to the current market.

We have started with meaningful projections that have been rigorously tested and have market impact.  What brings these statistics to life for investors is helping them to easily apply their expertise to the information to discount or emphasize the analytics and to raise their confidence in the use of it in their decision making process.  We are big believers in that process.

Have a great week.