What Chuck Norris Thinks About the S&P

"Chuck Norris played Russian Roulette with a fully loaded gun and won"

-Unattributed

Unless you’re Chuck, us mere mortals need to think about probabilities. This week, we have a new forecast for the next five days in the S&P. As always, we project a range of outcomes based on similar conditions in history. As today’s conditions change, so do the probabilities.

What exactly does “change in probabilities” mean? By comparing our distribution forecasts from week to week, we can get a sense of the change and the results are noteworthy.

Last Week (strong negative skew): We found 5 similar conditions in the S&P, where 4 out of 5 outcomes were negative in the next five days. We had an average projected return of down -1.1% and a 20% chance the S&P would decline by more than -3.0%. The actual outcome: the S&P declined by almost six percent, falling within the bottom range of our negatively skewed forecast.

This Week (more typical positive skew): We find 49 similar conditions in the S&P, where 16 out of 49 outcomes were negative in the next five days. We have an average projected return of up 1.1% by the end of the week and a 20% chance of rising by more than 2.6%. Given this distribution, what’s the tail risk to the downside?

You can read it from the chart, or email us for a more nuanced set of stats.

The actual outcome? Well…like any statement about the future, we’ll just have to wait and see. But in the meantime, we can avoid the common pitfall of waiting without a quantified view.

Disclaimer: The views and opinions expressed in this email do not necessarily reflect the opinions of Chuck Norris.

Have a great week!