by Wayne A. Thorp
Now that the Pittsburgh Steelers have won Super Bowl XL, it is time to move your money into stocks, as 2006 will most likely be an up year for the marketthat is, if you believe in the predictive power of the Super Bowl stock market indicator. This market barometer suggests that a Super Bowl victory by a team that played in the old NFL prior to the 1970 AFL-NFL merger results in a gain in the Dow Jones industrial average during the year, while a win for an old AFL team results in a down year for the Dow. The Steelers were part of the NFL prior to the merger and, along with the Cleveland Browns and the then-Baltimore Colts, switched to the AFC after the merger. The indicator has been successful in each of the Steelers four previous Super Bowl victories, with the Dow posting an average gain of almost 15% in those years. Excluding years where a post-merger expansion team won the Super Bowl, the indicator has been correct 77% of the time. Of course, I wouldnt recommend betting the farm on these results.
Indicators form the cornerstone of technical analysis, which is the study of price and volume data to try to predict future price movement. Indicators are developed by mathematically manipulating price and volume. The comparison article discusses 21 technical analysis and charting software packages. They range from free applications offering basic analysis capabilities to more complex systems that allow the user to create custom technical indicators as well as backtest and optimize trading systemsbuy and sell decisions based on indicator values. Those new to the world of technical analysis may not want to take the plunge into a full-blown program, and the costs associated with it. If this is the case, there are a couple of good, free, Web sites for chartingnotably BigCharts (www.bigcharts.com) and StockCharts (www.stockcharts.com)—to get your feet wet.
Magic Formula Follow Up
A number of our readers sent comments and questions regarding the feature article in the January/February 2006 issue, The Magic Formula Approach to Stockpicking, with a screen based on Joel Greenblatts recent book. Many had questions related to the calculation for enterprise value for our example company, American Eagle Outfitters. Clarification is provided in the Messages column of this issue. The complete article from our last issue can be accessed at our Web site. As always, we welcome your comments and suggestions, which you can send via E-mail to email@example.com.
Tax Day Looming
The calendar does us a favor this year and gives us an extra two days to file our taxes. Since April 15, the traditional deadline for filing income taxes, falls on a Saturday, the official filing deadline is Monday, April 17. For you last-minute filers out there, the On the Internet column of this issue offers some useful Internet links for tax forms, filing services, and other tax-related issues.