What a simple statistical investment tool can tell us about the climate
Guest essay by Eric Worrall
One of the simplest statistical tools used by investors is a moving average plot. If you plot the average share price of a company, or other investment product, with different smoothing periods, on the same graph, a crossover between the different plots can provide early warning of an imminent change in trend – a buy or sell signal.
From Wikipedia:-
“A moving average, as a line by itself, is often overlaid in price charts to indicate price trends. A crossover occurs when a faster moving average (i.e., a shorter period moving average) crosses a slower moving average (i.e. a longer period moving average). In other words, this is when the shorter period moving average line crosses a longer period moving average line. In stock investing, this meeting point is used either to enter (buy or sell) or exit (sell or buy) the market.”
http://en.wikipedia.org/wiki/Moving_average_crossover
The interesting thing about moving averages is they can provide useful, actionable information, without requiring any knowledge of the nature of the underlying commodity.
So what happens if we create a moving average plot of global temperature (in this case Hadcrut4)?
Source: http://www.woodfortrees.org/plot/hadcrut4gl/mean:60/plot/hadcrut4gl/mean:120/plot/hadcrut4gl/mean:240/plot/hadcrut4gl/mean:360
What is immediately apparent is we may be in the early stages of a significant inflection point – it is too early to tell for sure, but the beginning of an inflection which appears to centre on the early 2000s seems very similar to the inflection which occurred in the 1940s, heralding decades of cooling temperatures.
If the numbers I was plotting was the value of an investment, I would interpret the chart as a strong “sell” signal – a warning that a substantial drop could be imminent.
UPDATE: A previous post on WUWT by David Dohbro also comes to the same conclusion, and has a more detailed analysis:
http://wattsupwiththat.com/2013/10/01/if-climate-data-were-a-stock-now-would-be-the-time-to-sell/
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Andrew says:
January 30, 2014 at 6:54 am
“Bloomberg reports that the EU maybe set to fiddle the Carbon trading market, to push up the value of credits. Against EU rules.”
Against their promises. Rules mean nothing. They make them.
DirkH says at January 30, 2014 at 8:02 am
+1 and applause!
Richard
Old’un says: January 30, 2014 at 7:59 am “John Maynard Keynes famously said: ‘the markets can stay irrational longer than you can stay solvent’.”
“Markets can remain irrational a lot longer than you and I can remain solvent.” from A. Gary Shilling, Forbes (1993) v. 151, iss. 4, pg. 236.
Without understanding the context, cherry-picked quotations are just sour cherries, a la sour grapes.
This article brought to mind a thought I had the other day
Warmists remind me of lone yachtsmen who hear voices in the dark, mid ocean. It’s just the random noises of the sea but the human mind looks for patterns and creates ones it already knows, out of randomness.
Market makers love a punter with a system, as do casinos.
So, will the next big El Nino be a dead cat bounce?
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Mathematically, I believe this is telling you that the first derivative of the function (temperature) is changing, which means you are seeing a change in the rate of change, and maybe even a sign reversal. (if it starts to head lower, rather than higher)
This idea was published here about 6 months ago and much more convincingly.
Eric Worrel has just plotted a few different running means and does not even seem to have understood the Wikipedia page he links to.
Could try harder.
Wouldn’t looking at the rate of change (d°C/dt) in the signal be a better method?
re: casinos, the observation is very true. Mathematics only “works” if the equations are a symbolic representation of the underlying reality.
In Casinos, even many “smart” people fall prey to wishful thinking, and forget that the mathematics used there are only a representation of a carefully crafted illusion.
The underlying reality is that the house always wins, unless you can figure out how to cheat. And this is where we circle back to the mindset of the warmists.
Stock market data is very public and impossible to forge. It’s been around for well over 100 years and is therefore very amenable to analysis.
Can the same be said of HADCrut4 and what is the effect, if any, of any ‘smoothing’ of ‘raw data’ or ‘changing data sets used to calculate ‘global temperature” on the plots you have made, if any??
Just asking………
Off topic but look at the solar images to the right of my comment There’s a Solar Eclipse Happening Now That Can Only Be Seen From Space
With all due respect, the techniques used for chart analysis have nothing whatsoever to do with climate.
Looks more like a sideways correction with a slight dip.
Please God no not technical analysis. Can’t we do something more scientific like cast a horoscope or deal tarot cards?
Kim at 8.24am
‘so, will the next big El Nino be a dead cat bounce?’
Definitely!
Brilliant.
I looked at this last time it came up ( where it was referred to as MACD ).
http://climategrog.wordpress.com/?attachment_id=537
I noted that the two curves used to detect the buy/sell point were very close to another analysis I’d done about the linear relaxation model that us used widely in climate modelling.
http://climategrog.wordpress.com/?attachment_id=399
MACD could be regarded as detecting the cross-over between the rapid orthogonal response and the long term response.
The art is knowing how to chose the right periods. It seems something link 9 and 25 days is used in finance and (by chance) 9 and 25 years ‘worked’ for climate.
I suspect the financial version of the MACD is purely empirical, but my analysis may explain what it is actually detecting.
I think 2005 is very likely a turning point and now would be a good time to “sell” AGW and start worrying about REAL problems facing current and future generations.
Should we now refer to alarmists and skeptics as bulls and bears?
Gail Combs says:
Off topic but look at the solar images to the right of my comment There’s a Solar Eclipse Happening Now That Can Only Be Seen From Space
Well it’s not a friggin’ eclipse then , is it? LOL
Gizmodo : “In-space solar eclipses are fairly common”
There’s ALWAYS and “eclipse” in space. It’s just behind the Moon. Brilliant discovery.
If the rest of the chart counts as a clue one would expect the trend to be down for the next 20-30 years. That is eyeballed cyclical content indicates it’s more likely to be a substantial turn than a jiggle.
Greg:
Good point. There’s always a solar eclipse to be seen from somewhere in space.
MACD : time to sell:
http://wattsupwiththat.com/2013/10/01/if-climate-data-were-a-stock-now-would-be-the-time-to-sell/
OT, but good news. Henry Waxman is retiring. One less climate lunatic in Congress…
http://www.latimes.com/nation/politics/politicsnow/la-pn-henry-waxman-retire-congress-20140130,0,7708869.story#axzz2rtrtmwB0
The moving average might be a way to see inflection points that have already happened, but in stock analysis aren’t they trailing averages rather than centered?