Polling and reality: What do they know?

Walking back from my local polling station today, determined to say my piece in the most unusual and unpredictable British election in living memory, I started thinking about opinion polls. Dictionary definitions of ‘poll’ include:

The process of voting in an election.

Dialect: a person’s head. [Yes really a surprise to me]

Record the opinion or vote of.

Telecoms and computing: check the status of (a device), especially as part of a repeated cycle [Umm]

What many do not realise, though Mori and others have made a business out of this, is that polling data is a discreet information set that too many disregard, technical analysts included. Needless to say, not so politicians.

Into my inbox today popped this interesting chart courtesy of Ross Finley and his polling team at Reuters. This was of expectations for the US March Trade Deficit. What’s this got to do with technical analysis? Lots, because it’s all to do with expectations, psychology, framework, surprises, and crowded trades.

The chart shows that over the last five years the US monthly trade deficit has fluctuated between $37.5 and $50.5 billion dollars (yellow line). Data for March was $51.4 billion, the lowest since 2008 and a record low if one excludes crude oil and energy international trade.

The blue line is the median forecast of the many analysts polled; not the mean as outliers unduly influence results. The gap between expectation and fact in March 2015 was the widest over the period, and lower than the most pessimistic forecaster (the red line).

This tells you an awful lot about how markets are priced before the data, what sort of number will make them jump, and how far the subsequent move might go.

We should add this to our armoury of sentiment indicators, just like volume, implied volatility, and open interest.

US trade - 5 yearsChart courtesy of Reuters.

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Posted in Finance, Markets, STA news, Technical Analysis, Trading
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2 comments on “Polling and reality: What do they know?
  1. John Douce says:

    On Radio 4, last Friday 4.30pm. The More or Less program discussed the failure of the opinion pollsters to accurately predict the General Election result.

    The most astonishing confession was that Polling companies gather data then they edit it. They did not report the swing to Tories because they did not want to be ‘different’ from their peers. An appalling case of Herding!

    There must be openings for chartists in that industry. “It’s all in the price” or data!.

    J D

  2. Anonymous says:

    Indeed! The thundering herd.
    Not only polllsters, but also economists, are frightened to stick their necks out. You see John, if their views cluster, and the result is outside their tight forecast range, the event will be classed as a ‘surprise’ and then no one is wrong.
    Simples!

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About Nicole Elliott

Nicole Elliott

A graduate of the London School of Economics and Political Science (BSc Social Psychology) Nicole Elliott has worked in banks in the City of London for the last 30 years. Whether in sales, trading or forecasting technical analysis has always been the bedrock of her thinking. Key expertise lies within all areas of treasury: foreign exchange, money markets, fixed income and commodities.

She has also added to the body of knowledge of the industry writing the first western book on Ichimoku Cloud Charts. Strong media links and a cult following are due to her prescient calls on the markets and often entertaining format.

Nicole can be contacted at trending@sta-uk.org

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