Super Bets

Super Bets

Over 150 million people watched the super bowl last night and we can only guess how many people had wagers on everything from the final score of the game to whether or not Alicia Keys was lip synching during the national anthem.

Superbowl Sunday is a fabulous time to be an odds maker as they will make money no matter who wins. But what if they booked bets on the market? Even with the benefit of hindsight, it may be not be such a great proposition.

Think about it, if back in June of 2012, when the S&P 500 was down at 1266, and the bookies had to take action on where the market would be now, knowing that the debt ceiling debacle hasn’t been decided,  unemployment was a 7.9% in January 2013, and consumer confidence was at a multi-year low, would they pick 1,513?

Heck no! Las Vegas hasn’t grown to be the behemoth destination because the odds makers are right; it’s because that they get the “vig” no matter what the outcome. Unlike the so called “stock market forecasters” who are already predicting a banner year because of the January performance. Supposedly if stocks surge in the month of January, it increases the odds that the market will be up at the end of the year. This phenomenon is termed the January Barometer by Stock Trader's Almanac, and sports a pretty impressive accuracy rate of almost 90%.

But here’s a little lesson in statistics. If you compare stock market performance to a thousand random events, such as temperature, traffic, or even Super Bowl outcomes, you are likely to find one series of events that has a 99.9% probability of past correlation. Unfortunately, these correlations end up having zero predictive power.

As silly as it seems that we would grasp at predictive straws like the Super Bowl outcome predicting the stock market, or use one month of returns to predict the rest of the year, it pales to the insanity that is the current market situations.   

Trade well and follow the trend, not the perma-bull OR perma-bear "experts."

Best Trades to you,

Larry Levin

Founder & President- Trading Advantage

TradingAdvantage.com