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SP500 to Drop 14%
I am projecting the SP500 to drop 14% from the closing highs six weeks ago before finding a tradeable bottom. The week that QE3 was announced saw the SP500 close at 1465.77. By my calculations, the SP500 will bottom near the 1260 level, which is nearly 150 SP500 points from today's prices.
So how did I arrive at these numbers?
Figure 1 is a weekly chart of the SP500, and the indicator in the middle panel is the cyclical adjusted price earnings ratio (5 year). The indicator is wrapped in trading bands that looks for statistically significant extremes over the prior 52 weeks. The indicator in the lower panel is an analogue representation of our "dumb money" indicator that I show every Sunday in the weekly sentiment wrap up. With the indicator in the "up" position, investors are too bearish in their market outlook, and these typically are bull signals. What we know about investor sentiment is that it is cyclical. In other words, bearish sentiment will follow bullish sentiment and so on. Bullish sentiment peaked 6 weeks ago when QE3 was announced, and it has been rolling over with price ever since. If the present is like the past and if the cyclical nature of sentiment persists (and I have no reason to believe that it won't), then investors should turn bearish at some point in the future.
Figure 1. SP500/ weekly
But the question remains: at what point?
Now direct yourself to CAPE (5 year) indicator in the middle panel. In the overwhelmingly majority of the time in the past 22 years, the CAPE (5 year) will tag the lower trading band when investor sentiment turns bearish (i.e., bull signal). So going forward, my expectation is that investors will need to turn bearish on the markets (remember sentiment is cyclical) and this should coincide with the CAPE (5 year) tagging the lower trading band before prices bottom. What would it take to get prices to tag the lower trading band? The SP500 would need to drop about 150 points from its current level. This would put the SP500 at 1260.
Lastly, any downward price move that doesn't result in investor sentiment turning bearish will be pretty much the same. The ensuing bounce will be like the last 5 months, and it will be sub-optimal.
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By my Calculations, SP500 will bottom around 800 in "real" dollars. INFLATION BITCHEZ'
Words! This is why talking bears dont exist in the wild. They all go extinct. qex plus zirp.
There are a number that I think is very important right now. I refer to the MA-10 in a chart with a monthly time frame (MMA-10). Right now, the SP-500 is around 1.405 points, while the MMA-10 was 1.379 points, ie we are just 2% of this level. This indicator is important because if we look historically, whenever the SP-500 under the MMA-10, there was a significant correction.
"The ensuing bounce will be like the last 5 months, and it will be sub-optimal." I agree that there will be a bounce until the end of Romney's first 100 days, and then another cohort will wake up to the severity of the situation.
Last year Faber predicted Dow would rise to about 1400 then fall down to at least 1200 and then maybe to 800, depending. In this deflationary depression, seems your techniucals match his predictions. i do not know what calculations he used but you both seem in tune.
My financial advisor said if there is no "TARP-like" injection of money into the system, the deflationary spiral may take the Dow down to Faber's 800.
How does this fit into this info : Q3 GDP - Business Insider
1.8% GDP growth in Q3 and 2.1% personal consumption up.
If this is the trend into election week, it won't send the S&P down, it'll send it up.
even the insiders(hedge fun dies) are strugling to beat the indexies; so you think you got an edge-ha fucking ha...
donate to the salvation army and feel good about it.
If the establishment's props stop working there is nothing more it can do if market participants want to exit all at once. The Fed Chairman can wring his hands ...
That's a big problem right now, the Fed has offered unlimited cheap credit and the equites' traders aren't responding as they did in 2009 and 2010. Ditto in the EU where promises of cheap credit "in unlimited amounts" has gone over like a lead balloon. That would indicate the establishment has run out of ammunition.
Without the Fed and the US Congress ... or Germany ... offering cheap loans ... and with few accepting them ... what's left? Not much. This is all starting to look more like October, 1987.
Or October 1929...
Got beer?
It sounds like he has unwittingly hit a nerve on you.
My god, this guy posts the biggest piece-of-shit contributions.
I'm just lured to visit the website to 'learn more'.
Unreal.
It's all Bullshit! It could drop 150 points in one week soon.
Should be back at 666 but that would be a market.
Whatever you say about technical analysis being unable to predict market participation due to the fact that the Fed and other central banks intervene on a regular basis, it should be remembered that the Fed and other central banks are also now "market participants," which make them also subject to technical analysis.
So even the manipulators and their schemes cannot force the market to do something the market is not prepared to do. Their fingerprints are also on the market and that participation gets folded into the general picture, which can be read like a book.
Thanks, TT.
:D
I would wholeheartedly agree with you except for the fact that the FED has unlimited economic capacity to fuck up anything to near infinity.
Thanks for your take on the market, Technical. Your expectation, and reasons for it, seem logical and probable.
Most of us fear a 2008 scenario, where we get steep declines, that show up as "bottoms" on your charts. And they are, for several weeks or months. The final bottom could be much deeper, and painful if we don't keep getting out at the intermediate tops.
Keep us posted.
Uhhh....yea, sure. I like the 'probable' part the best.
Yep!!! Technicals overrun by politicals. Dont waste your time or your money.
Trying to apply technical analysis to this market is blatant insanity. There is no excuse.
Basically, the purpose of technical analysis is to ascertain buy and sell signals. There are "mysterious" forces at play (call it PPT, TPTB or whatever) that use the SAME technical analysis to determine potential sell signals then strategically, surgically and specifically neutralize such scenarios. These tactical attacks are conducted mainly through the PD bank's prop desks. Over the past 4 years this approach has been synergistic-ally enhanced by the fact that "sell signals" have become less reliable and hence less trusted by traders- be they carbon based or digital. Just MHO.
long gone from these so called markets - i guess the gamblers can not leave the casino til its all gone.
good luck-lol....
I wonder, just where does Brian Sack fit into his equations?
This is about as useful as astrology. Pure silliness. Policy moves markets.