IEM Daily Feature
Wednesday, 03 October 2012

Golden and Death Crosses

Posted: 03 Oct 2012 05:28 AM

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Applying trend analysis techniques often used for stock price forecasting to weather data is an interesting venture. The featured chart looks at "golden and death crosses". The "cross" is a reference to the intersection of two moving average lines within a time series plot. One line represents a short term window average and the other is a longer term window average. The theory is that when the short term moving average moves above or below the longer term average, the immediate term direction of the trend continues (aka momentum). A "golden cross" is when the short term average surpasses the longer term average (upward momentum) and a "death cross" is the opposite situation (downward momentum). So applying this to a time series of daily average temperatures, we can find these cross events occurring between a 50 day and 200 day moving average (typical periods used for stock price analysis). The top chart shows an example of this analysis for the recent few years. These events happen once per year and their date of occurrence is included in the bottom two charts. When the actual data has a preference to be on one side of the trend line, this is called either support from going lower or resistance to going higher. The cross events are said to denote a regime switch between resistance and support. So within the past week we had a "death cross" which would indicate that the near term 50 day trend will now act as resistance and our temperatures are going lower! Of course, we live in a physical world and statistical behaviors of temperature are more a result of cyclical processes that play nicely with trend analysis techniques.

Good = 28
Bad = 12

Tags:   stockmarket