HOW BLACK MONDAY WAS FORECASTED ACCURATELY FOR STOCKS

On Monday, October 27, 1997 the Dow Jones Industrial Average plunged 554 points. This was the largest "point drop" in the history of the DJIA, and the largest percent drop in ten years, since the crash of another "black Monday" on October 19, 1987.

Both crashes were forecasted using adaptive forecasting methods.

The crash on October 27, 1997 was forecasted the previous Friday (10/24/97), with a proven forecasting accuracy of 88%.

Note the large number of "S" forecasts following the closing prices on 10/24/97. As explained below, "S" means SELL or SHORT. This is a forecast for the price to go DOWN.

The following forecast was posted publicly, on the World Wide Web, on Friday, 10/24/97.

DOW 30 STOCK FORECAST

 
FORECASTING ACCURACY = 88%
                                                                    

FORECASTING ACCURACY = 88%.                                          
                                                                     
           CURRENT   ...CLOSING PRICES...                       PAPER
ISSUE       TRPRI  | 10/23/1997 10/24/1997   TREND RANK WINS   PROFIT
                   |                                                 
AA          77.25  |     77.25 S    76.44 S  -3.7%  13     +     1.1%
ALD         39.38  |     39.38 S    38.50 S  -9.1%  77     +     2.2%
AXP         82.13  |     82.13 S    80.06 S  -2.7%  22     +     2.5%
BA          49.88  |     49.06 S    48.88 S  -8.9%   4     +     2.0%
BS          10.75  |     10.69 L    10.81 L   1.7%  20     +      .6%
CAT         57.94  |     59.13 L    57.94 S   -.6%  18            .0%
CHV         83.50  |     83.50 S    83.50 S  -4.4%  14            .0%
DD          58.06  |     60.06 L    58.06 S   2.9%  24            .0%
DIS         84.94  |     82.31 S    82.38 S  -1.5%  23     +     3.0%
EK          61.31  |     61.31 S    60.75 S  -2.6%   6     +      .9%
GE          69.44  |     67.38 S    66.00 S  -5.2%  16     +     5.0%
GM          70.25  |     70.25 S    68.06 S  -2.0%  15     +     3.1%
GT          69.06  |     66.50 S    65.81 S  -3.3%  17     +     4.7%
IBM        100.38  |    100.38 S    98.00 S  -2.0%   9     +     2.4%
IP          53.19  |     55.63 L    53.19 S  -4.5%  12            .0%
JPM        118.25  |    118.25 S   115.94 S  -2.9%  19     +     2.0%
KO          57.69  |     57.69 S    55.63 S  -4.6%  10     +     3.6%
MCD         47.19  |     47.19 S    47.13 S  -2.1%  25     +      .1%
MMM         95.75  |     99.38 L    95.75 S   3.5%  21            .0%
MO          41.00  |     41.00 S    39.56 S  -2.2%   5     +     3.5%
MRK         93.50  |     94.25 L    93.50 S  -2.1%  11            .0%
PG          70.75  |     70.75 S    70.69 S  -2.3%  78     +      .1%
S           56.88  |     43.25 S    43.00 S  -5.7%   1     +    24.4%
T           45.19  |     49.06 L    50.31 L   2.3%   2     +    11.3%
TX          61.44  |     60.63 S    59.50 S  -2.1%  79     +     3.2%
UK          49.00  |     49.00 S    49.69 S    .2%  27          -1.4%
UTX         79.13  |     76.63 S    74.25 S  -5.1%   8     +     6.2%
WX          29.19  |     28.75 L    28.25 L    .0%   7          -3.2%
XON         63.13  |     63.13 S    62.63 S  -3.4%  26     +      .8%
Z           20.88  |     19.25 S    19.69 S  -2.8%   3     +     5.7%
                                                                     
                                                         88%         
                                                        WINS         
                                                                     
Forecasting Accuracy = % of WINS for positions held 1 day or longer. 
Not adjusted for stock splits or dividends.                          
L = BUY/HOLD, S = SHORT/SELL, C = CASH.

Results ...

Note that the proven forecasting accuracy for this forecast (above) was 88%. Many investors and traders acted on this forecast and preserved capital during the accurately-forecasted 554 point plunge in the DJIA on 10/27/97

World's highest forecasting accuracy?

This is a question, not an outragous claim. I began posting forecasts for this portfolio in February, 1995. Since that time, I have compared forecasts using this adaptive forecasting method to other sources of forecasts. I've been amazed to learn that these forecasts have had a higher forecasting accuracy, and a more consistent HIGH forecasting accuracy than forecasts from ANY OTHER SOURCE that I am aware of. Please let me know if you are aware of forecasts from other sources that are better. For a direct comparison, any other forecasts must be published or posted daily BEFORE the market opens (no back testing comparisons), and the forecasting accuracy must be available daily, using all of the forecasts made in the portfolio.

We engineers are a conservative group of professionals, and I don't want to make any claim unless I definitely believe it to be true. To the best of my knowledge, these forecasts have had a higher forecasting accuracy, and a more consistent HIGH forecasting accuracy than forecasts from ANY OTHER SOURCE. Unless I can locate a more accurate source of forecasts, I will be drawn to the conclusion that adaptive forecasting yields the world's best forecasting accuracy. Please contact me if you have comments or data to share.

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Howard Phillips (hphillip@uncc.edu)