S&P 500 Expected Weekly Range 1,204 to 1,306

The S&P 500 expected volatility has decreased slightly to +/- 4.05% from 4.13% for the week or an expected trading range of 1,204 to 1,306 as indicated in Chart 2 below.  The long term sentiment signal (Chart 1 below) still indicates that we remain in a "Tentative Buy" period.  Therefore, a price drop below 1204 (or -4.05%) indicates a buy opportunity. The long term sentiment signal (green line) has steadily improved and it is about to cross the first confirmation signal line indicating that we move from a "Tentative Buy" period to a "Buy" period.   However, the "Super Signal" is steadily approaching zero (although showing slight improvement this week) and will likely form around the same level as 2008 if the trend continues.  For now though, the "Sentiment Signal" supersedes the "Super Signal".  If the "Super Signal" forms it does not indicate a time to panic.  It just indicates that it will be time to start making incremental adjustments away from equity positions into shorter term investments.  As you can see in chart 3 below, in 2008 the market rose for a period of one to two months after the Super Signal formed providing opportunity to exit before the crash.

S&P 500 "Super Signal" Formation Jan-2012

Last week the S&P 500 surprised many by posting a 7.39% gain closing at 1,244.28.  It closed above the expected trading range of 1,110.49 to 1,206.85 (as indicated in Chart 2 below).  Although we remain in a "Tentative Buy Period", as indicated by the "Sentiment Chart" (Chart 1 below) there were no buy opportunities  last week since the markets closed up or above the expected trading range every single day (for further explanation see Investment Strategy Page).  However, I am growing concerned by the trend towards the formation of a "Super Signal" (see chart 3 below).  The increased volatility of the market, with the expected weekly range now above +/-4%, adds further credence to these concerns.