Line up, place your bets
(MoneyWatch) Call your broker, go online, but however you do it, buy stocks today! Why? Because two of the most famous predictors of stock market performance both point toward buying stocks now.
Super Bowl indicator
One of the best known market indicators is that stocks skyrocket if the Super Bowl winner was once part of the old National Football League. Even though the big game isn't until February 3, I'm going to go out on a limb and predict this will happen. That's because both the Baltimore Ravens and San Francisco 49ers were members of the old National Football League.
According to Snopes.com, the indicator has correctly predicted the stock market about 80% of the time. That's a pretty good track record and I admit I'd increase my allocation to stocks if I knew the market had an 80% chance for an up year. But I want more!
January Barometer
Stock market forecasters on Wall Street place a great deal of emphasis on stock performance in the month of January, as it is perceived as setting the pace for stock performance for the rest of the year.
So if stocks surge in the month of January, it apparently increases the odds that the market will be up at the end of the year. This phenomenon is termed the January Barometer by Stock Trader's Almanac, and sports a pretty impressive accuracy rate of almost 90%.
While January isn't over yet, the odds of a favorable barometric reading are pretty darn good. The S&P 500 index is up 4.8% through January 24.
If I put both of these so-called powerful predictors together, the math indicates that there is only a 2 percent chance of a declining stock market in 2013. That translates to a 98 percent probability of an up stock market. You've got to like those odds!
Back to reality
Before jumping into stocks, however, let's go over a little lesson on statistics. If you compare stock market performance to a thousand random events, such as temperature, traffic, Super Bowl outcomes, or January barometers, you are likely to find one series of events that has a 99.9% probability of past correlation. Unfortunately, these correlations end up having zero predictive power.
This human addiction to prediction causes us to do what is called "data mining." It's a behavioral trait that drives us to find patterns out of randomness. And armed with these patterns, we are able to go forward and brilliantly predict . . . the past.
As silly as it seems that we would grasp at predictive straws like the Super Bowl outcome predicting the stock market, or use one month of returns to predict the rest of the year, I would argue that it's no sillier than the gurus on TV using their sophisticated analysis to pick stocks or predict stock market directions. They're all myths that investors shouldn't buy into.
Keep in mind that the highest, and most obscure, correlation to the U.S. stock market ever found was "Butter Production in Bangladesh." The only bull I'm willing to bet on is that these indicators are just that - bull!