Behavioral Economics!

Jan. 11, 2003, While Behavioral Economics professors of prestigious universities such as Harvard and MIT present evidence to the federal government and the financial world that psychological elements of human behavior can allow for the prediction of market trends, a small relatively unknown company, United Dynamics Corp., has quietly been using a proprietary formula for three years to predict short term behavior patterns in the financial markets with a small group of subscribers who can verify the forecasts were sent prior to the market outcome. Back testing on the Volatility index with this algorithm (called the SuperForce algorithm, based on the companies website www.superforce.com ) indicates a huge and consistent correlation, between predicted behavior and Market Volatility.

 

Phase Q represents the forecasted peak of the upward movement or forecasted valley of the downward movement of the markets. In this case there are 289 points where the algorithm forecasted a changed direction and treated the Volatility index (VIX) as a phantom stock, they then ran the VIX through as a stock with the above results.

 

Data from the company has been requested by two different U.S. Military command divisions, the company expects the information could be used for applications with Psychological warfare. While we would expect the company officials to travel with security usually only reserved for the heads of state, the company remains relatively dormant without pomp and fanfare, waiting for objective testing results knowing that continued consistent correlations will result in a growing valuable asset over time. As this sleeping giant begins to awaken as an information powerhouse, company officials anticipate that the dissemination of information to the general public will cease in the near future, keeping their genie attached to the bottle.

 

The applications of the information is mind boggling as the company has shown not only a behavioral relationship but also a physical correlation with professional athletes ranging from hockey players to NASCAR drivers to triple crown horse performance. While the company has shown again and again accuracy in this area not one sports team, athlete, race horse owner has ever contacted the company for utilizing the information.

 

A back test late last year on days when public company earnings warnings came out showed that a company could actually lose an extra 2% on top of expected share loss based on negative new if the news was released on a day when forecasted behavioral conditions were not ideal for negative news.

 

While an extra 2% loss may not sound like allot the company points out that Nortel Networks first major warning resulted in a market cap loss of $50 Billion USD and $100 Billion Canadian as they warned on a day that was so severe that United Dynamics Corp. provided a special alert to extreme-severe behavioral reactions prior to that week that the market would fall more than normal. The company actually had a call from an upper manager at Nortel who had been aware of the United Dynamics Corp. special alert but was unaware of the pending Nortel earnings warning, stating "if only they knew of the relationship this could have been averted!". Currently only one company located Canada is using the service for releasing news.

 

Back testing of the algorithm compared polls leading to the year 2000 Presidential election showed that 24% of the vote was swayed due to behavioral influence. While this accuracy resulted in a BBC radio interview, not one political party or government official has ever contacted the company regarding potential application around elections, best days to fund raise, give speeches or hold press conferences.

 

You would think Hollywood would be requesting the best dates to premier a certain style of movie, given the amount of money they throw into making the movies, United Dynamics Corp. points out critics and audiences will give a thumbs down if the behavioral conditions are not right when the movie is first viewed and initial reaction is paramount to bottom line of the movie. Although Dreamworks SKG was made aware of this potential they refused to even consider the service. 

 

While the general population, government politicians, corporate America, Hollywood... fail to recognize the importance of this new tool, U.S. military command seems to have a better grasp of the potential. The company is now in the process of running a three year back test on 600 stocks which include the Dow 30, NASDAQ 100 and S&P 500 companies.

 

Initial three year back testing (phantom stock- no short selling rules and no commissions were factored in) on the Dow 30 shows no losses with the algorithm, 1 stock showed over 200% gain, 15 stocks showed between 100%-200% gain, 10 stocks between 50%-100% gain, 3 stocks between 25%-50% gain and 2 stocks between 10%-25% gain.

 

Compared to actual Dow 30 market share value gain or loss over the past three years only 4 of the Dow 30 gained since January 2000, 8 stocks lost between 5%-25%. 10 more lost between 25%-50% and the remaining 8 lost between 50%-90%.

 

The algorithm phantom trading beat everyone of the Dow 30 stocks based on 578 trades for each stock.

 

The company is now back testing 36 months for 600 public companies stocks (including all Dow 30, NASDAQ 100 and S&P 500 companies) the results of all 600 companies will be made available in late January 2003 on www.superforce.com .

 

Volatility Index (VIX)

The Volatility Index is a way to track caution and fear in the market place by tracking the options market. We have run the Volatility Index through our algorithm using the same days we trade on and found the following attributes. On positive ion ratio days the VIX moves down meaning people are not as cautious. On Negative Ion Ratio days the VIX moves up, Negative days are good for people but bad for the markets as people tend to be more level headed (they look both ways before crossing the street). Our monthly trading system is based on our exclusive algorithm that forecasts these fluctuating Ion ratios ahead of time.

 

 

Year 2000

Year 2001

Year 2002

Correct VIX trends forecasted

50

49

61

Incorrect VIX trends forecasted

36

35

46

Percentage

58.14%

59.17%

57.01%

 

 

 

 

Year 2000

Year 2001

Year 2002

Correct VIX trends average percentage per

8.50%

8.34%

6.61%

Incorrect VIX trends average percentage per

-4.36%

-7.00%

-4.98%

 

 

While the volatility index is not a stock, it is a tool based on options. If it was a stock and you were able to trade it with the algorithm, phantom trading indicates substantial gains. United Dynamics Corp. does not take into account commissions or short selling rules in phantom portfolios.

The market volatility index computes volatility of four OEX contracts in two nearby months, one call and one put just out of the money, and one of each, just in the money, for each of the two front months. Source: CBOE

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