Category Archives: Market Timing

May 16th, 2012

The Difficult Choice

The times aren’t easy for market timers.  The market has declined around 6% since the April 2 peak of 1419.04 and the anxiety level is rising.  The question of every market  timers lips are: “Should we sell into this decline and, if so, how much?  Is this a collapse similar to the stealth bear market brought on by last year’s Federal budget deficit crisis, the S&P downgrade of US debt and the deepening lose of confidence in the Euro currency?  Or, as many have discussed before, are we merely going through a typical “sell in May” correction which, if we stay put, we’ll recover from relatively unscathed in the fall?

Contrarians might take the opposing side and ask “Should we take advantage of the opportunity presented by lower prices and begin to pick up some bargains while we have the chance?”  As the saying goes, that’s what makes a market.  Two diametrically opposing views leading to two opposite courses of action, both coming from the same set of facts.

Unfortunately, the chart of the S&P 500 doesn’t provide much insight as to the best course of action.  I first began surveying what I called a “congestion zone” on April 12 in “Identifying the Boundaries of Stock Chart Congestion Areas” and followed that up on April 23 with “The Lower Boundary is Becoming Clearer“.  Here we are, just over a month later, and without any clearer idea of what the boundaries of the zone are or whether we may have actually fallen through the bottom of the zone and began a downward trend.  The striking thing is the apparent similarity between March-April hump this year and the April-May hump last year.  Let’s hope the slide when the Index crossed below the 200-dma last year isn’t repeated this year.

The market index has fallen through the lower boundary of what could have been a flag pattern.  It fell below what I was hoping would be the neckline of a small head-and-shoulders pattern.  It fell below the 100-dma and is quickly approaching the 200-dma (which, coincidentally lies just above the 300-dma).  If last year is any example, then the selling could again be quick and deep.  But the recovery 4-6 months later was just as sudden and it may be so again this year.

The Market Momentum Meter was tested against nearly 50 years worth of stock market history and in the process identified the conditions (as reflected in the relative positions of the moving averages and the Index itself) under which exiting the market was the best strategy.  At other times, staying in the market, regardless short-term fluctuations, was the best long-term strategy.

So far, the Meter is still signalling a full commitment.  However, extrapolating further straight-line declines of an average -0.168% per day (the average daily rate of market declined between March 26 and yesterday’s close), the signal would turn a Cautious/Yellow when the Index hit approximately 1290 and a Bear/Red at 1240.  Coincidentally, those are the approximate levels of the 200-dma and of a long-term trend line that has been the locus of multiple pivot points since the Tech Bubble began in 2000, respectively.

Last year, however, the market’s decline was so steep and rapid that the Meter’s exit signal was too late.  Furthermore, the recover was rather quick so that it failed to signal a timely return.  Unfortunately, the difficult choice being faced is between violating our discipline and sticking to the discipline and risk further losses.

May 3rd, 2012

Rohrbach on Market Timing

I shouldn’t but I will anyway.  I shouldn’t whine but you’re all friends or you wouldn’t be reading this so I’ll borrow your shoulder to cry on and your ear to hear my complaint.  OK, here it goes, “I don’t understand why more of you haven’t subscribed?”

I happened across a series of interviews on Forbes.com with Jim Rohrbach of Investment Models about using moving averages to spot trend changes.  The essence of Rohrbach’s message is that:

  • “[You] can’t look into the future. If you can just identify when the trend changes, that’s all you need.”
  • “[Most traders] don’t know how to identify a change in the trend in the market, and it’s not that difficult, if you spend the time to try to figure it out.”
  • [most investors] are being told constantly by brokers, etc., ‘Don’t try to time the market…it can’t be done.’
  • [Rohrbach] “spent seven years working on the mathematics of that thing. I kept stumbling, but I finally came up with a way where I can take certain ingredients, which I’m not going to tell you what they are, and if I applied them to the mathematics, I could tell on a daily basis what the trend of the market was for that day.”
  • “Convert the action of the market into a number. That number represents the trend for today. If the market is going up several days in a row, that number will go up, and vice versa.  But you’ve got to know the ingredients, and you’ve got to use mathematics. Don’t listen to those guys on the Street, or wherever, who tell you the reasons for the market going up or down, because they have nothing to do with reality.”
  • “And you’ve got to stay in [Apple] if you’re really going to capitalize on this thing. If you get out because Apple dropped ten points today, that might be a big mistake…… Stay in, stay in, stay in. Even if the market goes down 200 points.”
  • “You don’t have to be smart. You have to be intelligent. You have to have a strategy that tells you when to get in and out….if you have something that’s worked for 40 years, then once you know where the market’s going, the trend of the market, then you can start playing around with individual investments.”
  • “Just play it with the market. It’s telling you—and I know that’s kind of difficult for the average person to do, and it’s also very difficult for them to have the discipline to act on every signal. Your emotions get involved in this game, especially when your money’s involved.”

I tell you all this because I want to demonstrate what I’ve been writing here about since starting this blog over six years ago are the same things that others in the know have been doing also.  I also studied the market’s action since 1963, almost 50 years worth of history, and came up with my own mathematical indicator as to the strength of the market’s momentum and direction; I call my indicator the Market Momentum Meter.

If market conditions remain relatively unchanged over the next several weeks, the Market Momentum Meter will approach a critical level early in June.  Members to Instant Alerts see what the Meter’s reading is each time I make a trade; each day’s reading is recapped in the Weekly Report.

Rohrbach charges $395/yr for his market timing service or, as he says, “about a dollar a day”.  My service is less expensive plus you can see how I translate my Market Momentum Meter into actual trades shortly after their execution.  I also keep track of the the performance of those trades in a Model Portfolio because market timing needs to be followed with a high success factor in stock selections (even the best in baseball strike  out once in a while).

The market is at a critical point.  Is it correcting or reversing?  Should you sell in May and go away or buy in anticipation of a market resurgence?  Become a member to see what I’ve done.  Don’t put it off, act now!

May 2nd, 2012

“Trading Around a Core Market Direction View”

Jim Cramer did one of his “I’m going to teach you ‘homegamers’ how to trade the same as I did when I was in my multi-million dollar hedge fund years ago” shows.  The point at which I was surfing through the show was when he was answering a viewer’s question about when to sell a winning position?  His answer was that if the viewer didn’t want to act like a novice trader, he needed to “trade around your core positions”.  But what does that mean?

According to the show’s transcript, the concept involves:

  • start by picking a stock about which investor has an opinion. They should believe the stock could go higher over the long term. It should be a great underlying company with a stock that could get tossed around by market volatility, but nevertheless has potential to push higher in the long haul.
  • Each time the stock jumps 3 percent, the investor sells 16% to make some profits and continue selling shares as the stock advanced until the position was reduced by 50%.
  • At that point, the investor would wait for the stock to be knocked down, so they can buy more shares.  When the stock declines 6%, the investor would buy back 16% and continue buying in increments until the original position was repurchased.

According to Cramer, “A lot of people think that trading is incredibly exciting and it can be, but if you’re good at trading around a core position, you should be pretty bored because all you’re doing is watching the stock move and trimming or adding to your position accordingly.”  It sounds simple enough but, I’m sorry, the market isn’t that accommodating and unless your portfolio has less than a handful of stocks to follow it sounds like just to much trading.

Rather than watching the daily trading patterns of individual stocks, I like to “trade around a core position” where the core position is my total portfolio and the trading is making essential a single investment decision: “How much should be invested and how much cash should remain at the present time.”  What I’ve found is that investing is essentially a risk and cash management strategy.  There are times when you should be fully invested (or more so when using margin) and other times when you need to be 100% in cash.

I arrived at that conclusion by watching the action of individual stocks and my total portfolio as compared with the S&P 500 Index.  What I’ve found is that the odds are that stocks tend to follow the market’s general direction; they may vary in degree but the direction of the movement is usually in the same direction.  Regular readers are familiar with a saying that I’ve quoted here often: “50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own.”  Here are several examples from today’s trading.  The blue line is the S&P and the black is the stock on a on minute chart:

  • TKR
  • EOG
  • CE
  • ALGN
  • LLTC

I could go on and on but you get the picture.  When the market goes up, most  stocks will go up; when the market goes down, individual stocks will likely go down.

Bottom line, it’s probably more important having a good sense of what the market will be downing this minute, this morning, this week, this month or the next six months than it is trying to predict what individual stocks will be doing.  Rather than timing sales of individual stocks by the price action of that stock,  it’s probably more worthwhile tying that transaction to what the market will be doing.  Rather than selling a stock because it’s gone up 10%, 20% or even 50%, you should time the sale to the health of the market or industry group.  Conversely, time purchases according to whether the market will be firm or if it’s on the verge of correcting or reversing.

“Trading around a core position” can lead to either major opportunity costs in lost profit or real losses from buying into a deteriorating stocks or market.  Figuring out market direction is probably time better spent then finding stocks with the most ideal stock charts.  When the market is rising it’s more important to throw money at a diversified portfolio (or even into index ETFs) than trying to find “the best” stocks to buy; when the market is falling, getting out of the way is more important than trying to decide which stocks will survive the downdraft and which won’t.

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April 23rd, 2012

The Lower Boundary is Becoming Clearer

Less than two weeks ago I wrote ““Identifying the Boundaries of Stock Chart Congestion Areas” in which I talked about three potential bottom boundaries of the congestion area that was developing and might eventually turn into a recognizable chart pattern.  With time, the emerging chart pattern is becoming clearer and, I must add, a bit more worrisome.

 

The discussion of “boundaries” is actually at the core difference between fundamental and technical analysis.  In fundamental analysis, analysts look at the slowing Chinese manufacturing index, Spanish debt refunding, elections in France and the upcoming U.S. elections, this quarter’s corporate earnings reports and the guidance for the year, upcoming Fed meetings, jobs reports, etc., etc.  Those analysts would then attempt to distill and prioritize the voluminous and disparate data facts into a consistent picture.  Finally, they will translate that picture into not what it means today, where it all might be headed in the future and what the impact might be on the stock market and individual stocks.

Needless to say, there are about as many divergent opinions about each of these data points as there are analysts willing to speak about them.  Some of those opinions are meaningful and reliable while most are guess that are about as useful as yours or mine.

Technical analysts, on the other hand, focus more on the actual decisions continuously being made by millions of investors, whether rightly or wrongly, rather than the reasons for their having made them.  They look at the continually changing balance (or imbalance) between supply (sellers) and demand (buyers) as reflected in transaction prices and volumes.  The primary focus begins with whether that balance is shifting on a continuous basis in one direction or another because when that imbalance starts it tends to be self-perpetuating, reinforcing and continues for some time (i.e., momentum).

The market, after having risen nearly 30% since October, is currently almost perfectly balanced between buyers’ demand and sellers’ supply.  Based on investors’ various interpretations of those fundamental facts, nearly an equal number see the facts portending a bearish future as those who see the facts leaning in a more bullish direction.  In other words, about as many see the market glass as half-full as see it half-empty.

Our search for boundaries is an attempt to learn when that equilibrium balance starts tilting in one direction or another.  Sometimes the balance continues for a few weeks and sometimes it takes months.  In the last post, I inserted three possible bottom boundaries.  As a result of today’s severe open, one of those supporting trendlines was penetrated; if there isn’t a quick strong bounce before the close and into tomorrow, then more downside can be expected.  If the demand is insufficient to absorb the supply of those investors who see a pessimistic outlook then the market will break below both of the remaining support levels and will continue lower until a new equilibrium balance forms at lower levels.

March 26th, 2012

“Sell-in-May” in 2012, too?

In my weekly recap report to members yesterday, I wrote that “having a ‘game plan’, some expectation of the market’s near-term direction, helps put context to individual security trading decisions.  That game plan may turn out to be precisely correct or widely off the mark.  In any event, your game plan should give you more confidence in the decisions you ultimately make.”

My “game plan” foresees a “collision”, or convergence, between two significant chart patterns, or paths:

  1. the trendline extending through several key pivot points that occurred during the 2007-09 Financial Crisis Crash.  I described that trendline on March 19 at the area of 1435-1440 because “that’s approximately the level of the higher of two alternative necklines of the 2007-2008 reversal top of the 2007-2009 Financial Crisis Crash.
  2. a narrowing ascending “spiked” channel boundaries of the market’s move since the end of last November.  “This narrowing, trading range can’t continue indefinitely and I believe will be, in all probability, resolved with the market falling below the bottom trendline as contrasted with a highly unlikely blow-out cross above the upper boundary ….. sometime towards the end of April.”

The chart I included in the report depicting that “collision” follows:
Coincidentally, that projected “collision” coincides with what likely will be the launch of the seasonal “Sell in May and go away” mantra.  Taking that course of action in 2010 and 2011 would have been the right move; doing so this year may again prove to be best decision.

Supporting that view but from another direction based on Elliott Wave counts [a technical approach which, in full disclosure, I don't follow or believe in], Bloomberg BusinessWeek reprinted a report this morning from the technical analysts at UBS AG in an article entitled “S&P 500 Index May Begin Correction: Technical Analysis“.

““The S&P 500 (SPX) is trading in a wave 5, which suggests the market is on its way to a first important tactical top,” Michael Riesner and Marc Mueller wrote in a note yesterday. “The current rally is driven by fewer and fewer stocks and this is usually something we see at the end of rallies or bull moves….a setback could last as long as 10 days, dragging the benchmark gauge for U.S. equities to retest the 1,340 level.”

Where did they come up with 1340?  A 5% decline to 1340 would bring the market to a level where it last pivoted and, thereby, create a trendline that soon will be identified as the neckline of an emerging head-and-shoulder pattern with the decline completing the formation’s head portion.

So if you feel that the market has been running away from you, if you are looking to take some money out of fixed income investments that are currently generating a nominal yield and putting it to work in equities then I would recommend that you wait.  If you have some nice gains from having been adventuresome and put bought stocks last fall when everyone was scared to death by the European sovereign debt crisis then taking some profits could also be prudent.

There’s no need for predictions because the market will tell us within the next several of weeks its future direction.  A move above the 1425-35 area will indicate further advances.  A move below 1380 indicates that “sell-in-May” returns for a third year and purchases can be deferred to September-October.

March 2nd, 2012

Stock Picking Now Feels Like Shooting Fish in a Barrel – Chapter 2

We hear a lot today about the individual investor being frightened away from the stock market.  We hear that the young, those who face the challenge of having to replace social security for their retirement have no interest in owning stocks.  Many today believe that owning stocks is risky, difficult and is nothing more than gambling.

However, the performance of the market and of individual stocks since the beginning of the year should have been an excellent testament to exactly the opposite.  Over the past several of months, I often feel as I did on July 23, 2009 when I wrote “Stock Picking Now Feels Like Shooting Fish in a Barrel“.  You should click on the link and read the piece but, for you who are too lazy, here are some choice quotations from it:

“This is a great time to be a stock picker! You don’t hear many say this these days but it’s exactly the way I feel. The market and economy felt like they were going you know where in a hand basket on March 9. But now that seems so long ago and with the vantage of the slow, 10-month market turnaround ….. picking stocks feels almost as easy as shooting fish in a barrel …… It’s not often that you can start with a clean slate (i.e., essentially a 100% cash position) …. we have little garbage to clean out and now have the pleasant task of finding new seeds to plant ….. Many stocks have charts that closely reflect the market’s bottom reversal pattern….”

The technique I described there was the “Stocks on the Move” scan; these days I run daily and it always delivers a long list of excellent candidates.  As I wrote in 2009, the scan parameters

“Sounds complex but the results filtered out with 135 amazing stocks.  I don’t mind saying I have a hard time deciding which of these 135 I’m going to add to my portfolio but I would feel comfortable and sleep well with nearly any of them (with the caveat that the market remains constructive by crossing above the neckline by Labor Day, as I expect it will). “

I present charts of the following stocks as examples in that July 22, 2009 post.  Note that by that year-end, the four stocks were up an average of 35% (the market had risen 16.88% of the period) and up over 100% by the following year-end (market up 31.82%):

As members to Instant Alerts know, I’ve bought I’ve bought 60 stocks for my portfolio since October 24, 2011 and today 75% of them show gains (four of over 20%) while I’m confident the remaining 25% will soon also show profits.

I don’t intend to boast; I mention this only to prove the point about how easy it is to find great stock to buy in at times like these.  If you buy stocks at the beginning of a bull run and are patient enough to ride them to the end of that wave then it should be relatively easy to generate some huge gains.  On the other hand,  it almost doesn’t matter what stock you buy or how good it’s chart appears to be, you’re facing significant risks and the probability of only small rewards when the trade is near the end of a market life cycle,.

In 2009, the Market Momentum Meter had turned Bull/Green on June 24, 2009, three weeks prior to the above post and the tool I use to time the market (the relative positions of four moving averages plus the Index itself as described in Market Momentum Meter) turned Bull/Green came on November 18, 2009.  We might again be at a similar inflection point, the beginning of a new market life cycle, because  Momentum Meter turned Bull/Green on January 31, 2012 and the moving averages are only 45-60 days away from a perfect bullish alignment.

Finding stocks to buy again feels like a bounty or riches, like shooting fish in a barrel.   The “Stocks on the Move” scan is again spitting out up to 200 stocks worthy of purchase (most of my 60 trades came from that scan).  As was true in 2009, many of those stocks presented classical bullish chart patterns or potential break out situations (click on image to enlarge) including:

  • ISRG on 11/3/11
  • SCSS on 1/27/12
  • EQIX on 2/2/12

At time like these, the challenge isn’t in separating the winners from losers, it’s in putting money to work quickly enough to take advantage of the market momentum move.

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February 29th, 2012

What Color is You Stock Chart?

When it comes to the stock market, you want certainty and equivocation just won’t do.  Is the market going higher or lower?  Will a stock appreciate 20% and when?  However, the first thing you need to establish, whether from the investment adviser or, if you’re a self-directed investor making your own stock selection and investment decisions, is the bias and prejudice about the market’s future direction, whether the opinion is based on an optimistic or pessimistic view of the market’s future.  This is true regardless whether you follow the fundamental or technical approach.

I’ve often said that while charts don’t predict the future they are an excellent tool for timing investment decisions.  They do help in deciding whether a stock is about to embark on a trend move in one direction or another, whether it’s in the middle of one or if a trend move had  begun so long ago as to now be on the verge of ending.

We long ago established that general market trends drive approximately 50% of the fluctuation of individual stocks’ prices (if not in terms of the percentage change then at least the direction).  Therefore, the adviser’s or investor’s biases and prejudices overall market view, whether they are bullish or bearish with regard to the market will color their interpretation of each stock chart.  My own bias was brought home clearly as I was preparing today’s Instant Alert for members.

Instant Alerts documents for members each trade I make in my own personal account and the chart I used to make the decision.  I made three trades today and, as I was writing them up, I realized the different conclusions that could have been arrived from three charts based on whether one was an optimist or pessimist, a bull or bear.

  • This stock’s long-term chart mirrors the general market in that it’s been trapped in a “secular bear market” for the past 12 years between 18 and approximately 60; it is now at the upper boundary of that range. If you’re bullish and believe that the market is destined to move higher from here then you should believe that the stock likely will cross above the upper boundary and enter all-time new high territory.  If you’re bearish, then the upper boundary represents an impenetrable barrier that won’t be crossed in the near future.
  • This stock has an extremely interesting pattern which, like many others now, could be interpreted as either a reversal top or a consolidation depending on your outlook (bull or bear) and the market’s future direction.  One can see in the chart either a partially-completed “double head-and-shoulders” reversal top or a horizontal consolidation channel with a possible near-term cross above the upper boundary. 
  • This stock has been trapped in a 12-mos. consolidation pattern.  Whether you see a horizontal channel, a future inverted head-and-shoulders or a partially formed cup-and-handle doesn’t really matter that much.  The point is that a breakthrough on the upside with a strong market as tailwind could lead to substantially higher prices.  But then again, if the market weakens, then the pattern could just as easily turn out to be a reversal top.

Bottom line?  You can see consolidations or reversals in your charts but, in most cases, what it actually turns out to be in the end all depends on the market’s future direction as to what the pattern will later be called.

February 9th, 2012

Will the Market Soon Cross into All-time New-High Territory?

There’s no question about it, I’m definitely in the minority.  First I wrote a piece entitled “KISS in Market Timing Too” in which I compared my approach to a complex algorithm developed by Ciovacco Capital Management called the Bull Market Sustainability Index (BMSI).

I followed that up with a piece yesterday entitled Market Momentum Turning, But Will It Accelerate? in which I see each of the four moving averages that I use in my Market Momentum Meter market timing tool having turned up and soon approaching a perfect bullish alignment (50-dma>100-dma>200-dma>300-dma).

Now I see something written by Ray Barros in Green Faucet entitled “S&P Nearing A Top?” in which he lists the following six indicators that have convinced him that the market is just one step like the failure of Greece debt negotiations away from collapsing into a bear market. Those six technical indicators are:

  • Price – Structure: The 12-Month Swing and 13-week swing show we are in a sell zone. Figure 3 shows that since the Dec 2, 2011 that the up move has been on declining volume and range. In this context this is bearish.
  • Time: Kress Cycles suggest we are in a window when a top is likely.
  • Momentum: Figure 4 shows that this up move has been on declining momentum.
  • Sentiment: The sentiment indicators I use suggest the S&P is skewed to the upside.
  • Normalised Volume: We saw a sell setup with ‘below normal range’ and ‘normal volume’.
  • PoMo: For me, this indicator generated a sell signal today.

He even includes charts depicting each of the above as supporting evidence like the one below:

However, I looked at those charts and what struck me was that: 1) they were so complicated and there was so much to digest that I couldn’t possibly make heads or tails of them and 2) I wondered what those signals might indicate if we hadn’t been in a secular bear market for the past 11 years.

The answer to his question of whether the market is approaching a top is definitely yes!  I have little doubt that the market will approach the previous all-time high of 1576 sometime this year or next.  The correct question to ask is will the market soon scale to new heights and cross into all-time new-high territory?”  Since my Market Momentum Meter is turning bullish at these loft levels, I hope the answer is yes and I think the answer will be yes.

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February 3rd, 2012

Launching The Next Tech Bull Market

The big news today is that the Tech sector, as represented by the Nasdaq Composite Index, crossed into territory it hasn’t seen for more than 11 years (chart below is as of noon; actual close was 2905.66).  What this means is that the average Tech stock has surpassed the previous high set before the market’s collapse in the Financial Crisis Crash of 2007-09; new highs are breaking out in many tech stocks.

With the market measured in terms of my preferred benchmark, the S&P 500 Index) having risen by more than 22% since the October low, it’s probably a great time to ask the following two questions:

  1. What does “market timing” mean (or more correctly, what do I mean when I use the term “market timing?”) and
  2. With the market having gone up so far, it isn’t the time to jump in but rather the time to take profits and exit?

I’m not sure there are any “correct” answers to these questions …. and don’t let anyone who gives you an answer tell you that it is the correct one ….. there are only opinions.  So what I’m about to offer is my opinion and the discipline I intend to follow as hopefully the market enters into its next bullish phase.

To me, “market timing” means catching the beginning of a big wave and staying on until the end.  The most fun (read “fastest, easiest gains”) is in the earliest part of the ride; the hardest, roughest part is towards the end.  Earnings are multiples higher than they were in 2000 so, with the average tech stock now reaching heights it hasn’t seen in over a decade, I’d say this is the beginning of that ride.

That’s not to say that this ride won’t hit some bumps along the way.  There probably will be a retracement back to that resistance trendline at the 2007 high sometime over the next year in the form of a “buyers’ remorse correction” as many will second guess the advance in the light of some bad news (we can’t predict what that bad news might be but the “Talking Heads” in the business news media will create a story and claim that it’s the cause).  But that, too, will pass and the market of tech stocks will continue advancing.

Within the realm of possibility is seeing the Nasdaq Composite nearly double over the next 3-4 years and test its all-time high of 5132.32 made in March 2000.  It will take determination and iron nerves but it could also be extremely rewarding if you pick and stick with the right tech stocks and, if you make a mistake, quickly cut your losses.

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January 30th, 2012

That Old 1978-82 Analog Again

A post on Ritholtz’s Big Picture blog reflected a conclusion I recently reluctantly needed to begin facing.  Regular readers know that for over two years I have been tracking the path of the S&P 500 Index in what I call “Reversion to the Mean” (last mentioned here on November 4).  Briefly, the hypothesis was that the S&P has been growing since 1938 at an average annual rate of 7.5% and that it’s volatility around that growth rate was contained in a band of 40% above and below the mean growth rate.  The chart depicting that trend, updated with today’s S&P close of 1313.01.

The market’s horizontal path since the end of the Tech Bubble in 2000 appeared to me to have an uncanny resemblance to the secular bear market of the 1970′s. Consequently, I used the end of that prior secular bear market as an analog for the malaise that we’ve been suffering through for the past 11, going on 12 years and wondered where the market might wind up if it exited this time exactly like it did in 1978-82? The result was the following chart:
In November’s blog I wrote:

“…the market has been tracking fairly closely to the exit process back in the ’70′s so far. If that track continues for the near-term, we shouldn’t expect the market to approach the all-time high of 1365 until 2015 and not successfully cross above it until 2017. Let your hearts not lose hope because if it continues following the track then it could reach 3000 by 2020.”

So here we are, two months later and the market is only around 4% away from 1365.  With corporate earnings reports better than anticipated, we’re now beginning to read stories about expectations for expanding multiples and higher markets.  In a Bloomberg article today:

“Multiples for the benchmark gauge rose as high as 13.82 this year. Should earnings match analyst forecasts and climb to $104.78 a share, the index would have to reach 1,718.39 to trade at the average ratio of 16.4, according to data compiled by Bloomberg. That’s more than 30 percent above its last close. “

 

The following chart in Big Picture was the coup de grâce:

This is exactly the analog I’d been following for close to two years.  On the one hand, we might actually be escaping the Bear Market sooner than I had originally anticipated but, on the other hand, the analog may still be in play and we’re looking at a possible reversal for the remainder of 2012 in order to get back closer to the analog.

I guess if I had to choose between swallowing my pride at having missed a “forecast” and accepting the upside break out or meeting the forecast but delaying the opportunity of seeing a higher market again ….. I’ll live with having missed a forecast.

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