Courtesy of Declan Fallon
Last March, the S&P was performing very strongly and traded at 1,416. The 1-year S&P projection, based on historic matches of its relative position to 20-day, 50-day and 200-day MAs at this time was also very bullish. It was a projecting a further +15% gain, with a +9% to +21% confidence interval. A 15% gain would see the S&P around 1,628 this March. The low end 9% projection from the confidence interval offered an S&P at 1,543. As of January 4th, the S&P closed at 1,466.
In October of last year, the S&P missed the 6-month projection from March as the market trended lower. The S&P’s relative position at that time was still net bullish, although it ultimately continued to decline through to November. The October 6-month projection was more conservative, but still projected upside, with a target of 1,475 for March 2013, and 95% confidence range of 1,419-1,542.
There is still a couple of months to go before we get to these projection dates. As things stand, it is looking good for the S&P to hit the upper confidence level from October 2012/lower confidence level from March 2012 – at around the 1,540 mark.
Currently, the S&P is 5.4% above its 200-day MA, 3.8% above its 50-day MA, and 2.5% above its 20-day MA. This mildly bullish environment occurred frequently in the past; there were 32 prior occurrences of this match dating back to 1951.
The projection map based on the 32 data points is as follows:
Based on the close of the 4th January, by next year the S&P should be around 1,583, although there is a large degree of variance, particularly after 6 months.
However, this doesn’t come without exceptions. In 8 of the 32 matches (25%), the market was lower. The worst case match was from October 1st 2007, when the market went on to lose 25% of its value the following year. Matches in 2003, 1972 and 1965 also led to falls of more than 10%. Of the outsize winners: 1954, 1958, 1995, and 1996 all saw gains above 30% in a year. In 1961, 1964, 1988, 1989, 2003, and 2006, gains for the next year were all above 10%.
Projections from the last fifty years appear to suggest bulls will maintain their edge into 2014. If proven true, it would put the cyclical bull market into its fifth year – a run which would be considered long in the tooth by most metrics. This might prove to be the last big gain, although there hasn’t yet been a clear bearish projection since this analysis was started.
One can use Zignals Alerts to track the various price levels in the SPY. A stop at 10% would protect against the worst of any downside. While an alert to trigger on a 10% gain may be used as a cue to sell covered calls (?).
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