1/26/2011 12:58 PM ET|
Super Bowl theory says to go long
Dismiss the Super Bowl indicator at your peril. If enough people believe the market will head in a certain direction, it will.
The Super Bowl indicator is giving investors an unambiguous buy signal.
According to the Super Bowl theory, stocks will rise this year no matter which team wins. This is because both the Green Bay Packers and the Pittsburgh Steelers trace their roots to the original National Football League, before its merger with the American Football League in 1970. And this theory postulates that when a team from the old NFL wins, the stock market tends to go up.
Although Green Bay appears to be the early favorite to win the game, investors might be better off if Pittsburgh wins. The Dow Jones Industrial Average ($INDU) has risen an average of 14% in the three years that the Packers won, while it has risen an average of 18.4% in the six years that the Steelers were victorious.
Before you excommunicate me from the high priesthood of economics, let me point out that this indicator has correctly predicted the direction of the Dow in all but nine of the 44 years that the Super Bowl has been played.
That works out to a success rate of just under 80%. There aren't too many stock gurus or money managers with a track record this good.
Thus the Super Bowl theory bears (no pun intended) paying attention to -- even though there is virtually no reason why the outcome of this game and the direction of the stock market should correlate so highly.
Notice I said "virtually." Contrary to those who would tell you otherwise, there is at least one logical reason to pay attention to the results of the Super Bowl if you are an investor: mass psychology.
If enough people believe that the market is going in a particular direction, they will collectively turn this belief into a self-fulfilling prophecy.
This herd mentality is one reason why the market usually takes a header in September or October. It could also be the reason why a win by a team from the old NFL infuses traders with enough confidence to buy, thus pushing stocks higher.
By the same token, when the winning team comes from the old AFL, there has been a tendency to sell, thereby sending the market lower.
These references to the market's direction apply to the Dow's level on the last trading day of the year, compared with the last trading day of the previous year. Obviously, the market can -- and does -- change direction numerous times during the year.
Nevertheless, the triple-digit jump by the Dow on Jan. 24 -- the day after this year's Super Bowl combatants emerged from their conference championships -- might well be a sign that traders think that this will be another up year for stocks and are jumping on the bandwagon while prices are still favorable.
By the way, since the economic outlook has brightened considerably in the past few weeks, a rise in stock prices this year also makes sound economic sense.
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I am not sure which is more depressing, that Irwin Kellner got paid to write this article or that people are going to believe that there is any merit in it.
On the plus side, as someone that teaches probability and statistics courses, I will be using this article as a classic example of how bad so many people are at understanding probability, even (especially?) "experts."
.....another space filling yet otherwise worthless article on MSN
....though just as informative as the page and every bit as valid.
First, I'm not much of a football fan, EXCEPT for who plays and wins in the Superbowl. Thank you Mr. Kellner for pointing out this important Psychological Index which I've found very successful over the years. It matters not if it makes sense... as long as it makes money.
Sorry, gotta run & help the crew trim the sails... another beautiful day in the tropics...
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