Past IEM Features tagged: stockmarket
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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.
Our last two weather sessions have seen temperatures test the 32 degree resistance line only to fall back below late in the day. Our trend continues in a nice rising bearish wedge with both higher highs and higher lows set each session. We will need a close above the 32 degree resistance (daily low above freezing) to confirm an upward breakout, otherwise we are probably going back to retest the lows back in late February... Of course, temperatures charts do not behave like financial charts, but it is sometimes fun to apply financial charting analytics to meteorology. Ironically, the forecast has an upward breakout, but looks to get cold once again in two weeks.
The featured chart maps the performance of Ames high temperatures with the Dow Jones Industrials index since 1 Nov 2007. Both have been on the downward trend dropping ~10% during the period. Of course, this comparison is not related as one is related to the sub-prime housing collapse and the other is related to a bitter winter, but both trends do cause a great deal of misery to Iowans! With the stock market set to tank today, temperatures are expected in the teens with perhaps one more really cold night this week before a warm up in time for the weekend. Perhaps the stock market will recover by then as well!