(13 votes, average: 4.54 out of 5)
Loading ...JakeGint was nice enough to mention my blog a few times and today regarding a post on my blog regarding the swine flu public response and the stock response. I especially like trying out various statistical forecasting techniques and correlating different data series to other series. I plan to keep my blog more long term and a bit more general in my findings and not necessarily get into specific trading thoughts and details. But I figured I might post more of my trading and specific investment thoughts over here on ibc. Let me know what you think, I will try this out for a while.
So bottom line, while I don’t necessarily buy into the hype around the swine flu, I do think it is cool to track the cases and especially to track the public hysteria via various methods. Two favorites of mine are google trends and my own news count metric. It is not often, but when something like the swine flu comes along, I think that the hysteria drives all kinds of behavior including buying stocks. This was very evident in the swine flu stocks I mentioned in my blog post. Out of those stocks mentioned, I especially like the charts of two SVA and BCRX. And I like SVA even better as they are a Chinese drug manufacture with big contracts with the Chinese government and they are actually making a profit and have good viral flu vaccine stuff going on. So here is my combined chart showing my swine flu news index in the top pane along with the chart of SVA:
You can see how nicely correlated the stock action and volume are to the swine flu news index including the drop in the news index along with the pull back in SVA. From a purely TA standpoint, you could try to wait for SVA to fill the gap or come back to the trend line but I am not sure it will short term.
From here should be interesting. I believe and have forecasted on my blog that swine flu cases will go up, perhaps alot this week and next and I think that if the news index goes back up (which it will in the next few days) to a higher high than it saw last week then that will represent even more swine flu hype than last week and I think that will drive more interest in SVA and other swine flu stocks. If the news index fails to make a new high and starts back down then that would be a time to short the stock although I don’t know if you could really short SVA.
Put that along with some basic charting and if you see SVA break out up bullishly from this little flag along with the news index going up then I think that is a good short term buy.
Long term, I actually think some of these flu stocks (the ones that are primarily in the flu vaccine business) might be a good buy because I am guessing record number of flu vaccines will be requested this year because of the swine flu scare. I will try to comment on this post in the next few days as this develops and maybe do a follow up post to see how this played out. Obviously SVA is a pretty speculative stock so I would treat it accordingly.
- let me know how I did on my first Peanut Gallery post…
Welcome and 5*
I noticed on your blog you talked a bit about how you created your swine flu index. I was wondering if you could give a general overview on how to create custom indices?
Cuervo, to me there are two main steps in creating an index. First you have to decide what you want the index to represent and decide whether you want it more concentrated or more diversified. In this case I wanted a concentrated index that focued on the few stocks that were most correlated and most impacted by the swine flu story. The principal component multivariate analysis gives a statistcal/graphical way to do that but you could also just look at the different stocks’ charts and eyeball which ones are most correlated to each other and with the event of interest. If you want a diversified index then you want the opposite, stocks that are not correlated, but for sector indexes you really want concentrated in my opinion.
From there, all I did was take those 5 stocks and calculate the daily % change. Take an arbitrary point in time and assign the value of the index to some value, I pick 100 and then from that day on I am just taking the daily average % move on the 5 stocks in the index and apply that % move to the value of the index for the previous day. You could use a cap weighted average of the % daily moves, but in this case for simplicity I just used a simple average.
Thats an overview and I assume you were talking about the stock index when you said swine flu index. If you were talking about the news hype index that is a different thing and I can talk more about that if you want.
Good stuff, nice first post.
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Thanks Caveman for your follow up.
The hype index would be interesting as well as it reminds me of the infamous Gartner charts I spent too many times see charts from during vendor presentations.