Investors Benefit From a Historical Perspective

Few investors living today have ever seen anything similar to the volatility we’ve witnessed across markets over the past two years. Those looking for some historical precedent might be served by checking out Markethistory.com, a unique subscription-based research tool that aims to predict a market’s future by looking at its past.

The web site, and the company behind it, was founded by Tony Kolton, an old-time Chicago options floor trader who banked a small fortune shorting IBM before the crash of 1987 after comparing it to the price action of blue chips back in 1929. Stock charts seem to run in his blood.

As we pointed out last week, no tools for market prognostication always work. But while ticker symbols change throughout the years, human nature remains the same. How XYZ acted in the past can be very telling of how it might act in the future. So what’s Tony’s database keying in on now?

One ominous blueprint has been uncovered in Google (GOOG), which Kolton noted has closed below its lower Bollinger Band after a 3% decline on Tuesday. His database indicates that, according to the seven previous occurrences of this pattern, Google proceeds to decline further every time, with an average that peaks 35 days later down some 17%.

Google a Goner?


Another study, called an analog, plots a stock’s price action against previous examples in which it moved in a similar fashion. To that end, there’s bullish indicators from Latin American utility Empresa Nacional de Electricidad S.A. (EOC), whose current price movement is a 98.6% match — virtually identical, to that of Nov. 22, 2006. Back then the stock rallied an additional 10% over the following quarter.

It’s Shocking

With all the talk about how much stimulus is needed to put the economy back on track, I’m reminded of a series of advertisements from AT&T (T) that first aired nearly 15 years ago. Titled “You Will,” the ads presented an optimistic and brazen view of a technologically advanced future, with then unimaginable revolutions such as video teleconferencing, wristwatch cellphones and electronic toll roads part of our everyday routine.



Less than a generation later, virtually all the technologies have not only arrived, but have efficiently and inexpensively been integrated into contemporary life. How advancements that had previously seemed nearly impossible were achieved was not by government stimulus, but by profit-seeking corporations looking solely to make a buck. Scores of 1990s-era growth firms like Motorola (MOT), Microsoft (MSFT), Cisco (CSCO) and yes, AT&T, all contributed to making sure “We did” accomplish what “You Will” promised. Government spending, or control, provided little catalyst at all.