Super Bowl Indicator, or Why Root For National Football Conference Teams

When it comes to the Super Bowl, investors should always root for the National Football Conference teams

The next time when somebody asks you why are you so desperate to watch the Super Bowl, tell them that it is because the final score can make or break your investment portfolio. Wait, what? You probably wonder if this going to be one of those Top 10 excuses why you should watch the Super Bowl with your pals articles. Well, no, and you should probably read it regardless if you are a sports fan, an investor, or both.

Go National Football Conference teams!

The Super Bowl indicator, also called the Super Bowl Theory, is one of the most reliable and convincing superstitions in the world of finances. It says that the stock market will drop if an American Football Conference team wins the game. Well, that is just too bad if you happen to be a Jets or Patriots fan and an investor at the same time. So, if you root for the Cowboys, the Giants, or any other National Football Conference team, you can stay true to your heart and colors. According to the football-based theory, the market is going to rise if an NFC team wins the championship.

Does it really work?

As with all other theories based on superstitions, there are times when the indicator fails, but most of the time it is spot-on. In 37 years between 1967 and 2003, the theory was right an amazing 25 times. Then it started to fail and misled investors from 2004 through 2007, but when the Giants defeated the Patriots in 2008 the things got on the right track once again. So, does it really work? Well, thus far there were 45 games, and the indicator misfired only 9 times. With nearly 80 percent accuracy, it seems that the Super Bowl indicator really has the ability to correctly predict the direction in which the stock market indices move.

Prediction or influence?

Obviously, there is not a single logical reason as to why there should be such a close correlation between the outcome of the football game and the stock market tendencies. It just happens for some reason, but no one can really tell why. Maybe the indicator is not as much a prediction as an influence? Perhaps investors aware of this phenomena subconsciously play by its rules and turn the theory into a self-fulfilling prophecy themselves. So, what we are really noticing here just might be a crowd psychology.

Crowd psychology

Wait a minute, you may be thinking right now, good investors should not let emotions take control over their decisions. Clearly, such thinking is correct and they should not fall for a mass psychology indeed. However, first of all, even the best investors are only humans, and secondly, if everybody is doing something, sometimes it may be foolish to stay behind. Even, or especially, when it comes to trading. After all, a crowd psychology may be the main contributor to the stock market volatility.

In that case the real question seems to be how big part of markets is driven by a mass psychology today? “A hundred percent of it, as always,” claims Robert Prechter, a financial market analyst, and the president and CEO of Elliott Wave International, a market forecasting firm. “This is true even when markets are calm. Fundamentals do not determine stock prices. The stock market fluctuates up to 20 times more around so-called valuation anchors such as earnings, dividends, book value, and dividend yield. There is no fundamental basis on which to value stocks. The Elliott wave model defines the fractal form of social-mood change, and that is what drives stock prices.”

Let the indicator be

It would be unwise to swim against the tide and completely dismiss the indicator. Changing old habits does not come easy, so investors still rely on the theory. A win by NFC team gives them confidence to buy and in result push the price of stocks higher. When an AFC outfit triumphs, investors feel that it is better to be safe than sorry, so they sell their stocks and thus send the market lower. It is always up for debate if the Super Bowl indicator will provide accurate prediction, but its role in the stock market has been historically justified. So, let it be and enjoy the game.