BETWEEN HUNDREDS OF stocks, futures, indexes and options chains, many investors find themselves suffering from paralysis by analysis. My own screens are jammed with no less than 55 different charts at one time. Just watching the information, let alone synthesizing what it means and how it relates to your own positions, is an overwhelming task.

Recently, we've seen many securities experiencing true one-in-a-lifetime volatility. When was the last time a major large-cap financial such as Fannie Mae or Freddie Mac lost 25% in one day?

Tony Kolton knows. An old-time floor trader at the Chicago Board Options Exchange, Kolton ended up making a small fortune going short IBM before the crash of 1987 thanks to his research comparing Big Blue's chart against General Motors' in 1929.

Like the smartest local traders, Kolton was quick to adopt new technology into his investment research. The hand-drawn analysis that previously took hours now takes seconds, thanks to a powerful software program he created called the Market Information Machine, or MIM, which essentially evaluates an enormous database of prices going back before World War I.

To that end, Kolton's web site, Markethistory.com, claims to be able to give a bead on the future by examining the past. Using a variety of different approaches, Kolton and his team use the database to evaluate a wide variety of markets, including commodities, bonds and foreign exchange.

As a chart guy, my favorite feature is the analog graphs, which literally compare the current price action of any stock against any similar period over its history. In the most clear visual manner possible, one is able to see how well XYZ's current chart matches with its past, and trade based on the historical odds.

For beleaguered longs in the financial sector, the research suggests some relief from the relentless bloodbath is imminent. A recent analog of Bank of America, down 25% over the past month, shows a 92% match to a similar move going back to August 2005. One quarter later, the stock had rallied almost 3%.

Bank of America July 2008 vs. Aug 2005

Source: Markethistory.com

Same goes for American International Group, whose recent drubbing shows a 92% match to price action two years prior. One quarter later, the stock had rallied by almost 13%.

American International Group (AIG) July 2008 vs. July 2006

Source: Markethistory.com

The airlines don't appear to show as much of a historical likelihood to bounce. Recent price movement in Continental Airlines shows a strong 93% match to July 2002, when shares went on to decline over 58% the following quarter. Same story with United Airlines parent UAL, whose 91% matching analog shows a historical tendency to drop another 33% after price action similarly to what's recently unfolded.

Continental Airlines (CAL) July 2008 vs. July 2002

Source: Markethistory.com

UAL (UAUA) July 2008 vs. Jan 2008

Source: Markethistory.com

Pfizer's shares also don't show much bullishness based on historical price action. The 94% analog match indicates subsequent price action, observed almost a year ago, could knock the stock down an additional 7.8%

Pfizer (PFE) July 2008 vs. August 2007

Source: Markethistory.com

When it comes to the broad market averages, the analog of Diamonds Trust, an exchange-traded fund that tracks the Dow Jones Industrial Average, currently shows a 91% match to the markets immediately following the Sept. 11, 2001, terrorist attacks. One quarter later, the Dow had rallied almost 17%.

Diamond Trust ETF (DIA) July 2008 vs. September 2001

Source: Markethistory.com

Although I find the data fascinating, I also wouldn't advocate using it as the primary tool for making decisions about allocation. Just because the current decline in Merrill Lynch, for example, resembles the one back in November 2007 doesn't mean the stock will necessarily rally 8% in the following quarter. But if one's own research suggests an emerging investment opportunity, indicators like Markethistory.com can support a thesis to either get involved or stay away.

Because ultimately markets are a function of human emotion and stock prices are the record of that emotion. In the words of Mark Twain, "It is not worthwhile to try to keep history from repeating itself, for man's character will always make the preventing of the repetitions impossible."

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.

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