Sunday, January 29, 2012

S&P 500 - 89% Probability Weekly Close Down

There is not much to say about this past week.  The S&P 500 was up only 0.08% for the week, but it was up.  This marks the 4th consecutive week in positive territory.  Therefore, there is approximately an 88% probability that this week will close lower than it opens (or a 12% probability to close up).  However, the "Sentiment Signal" (Chart 1) continues to indicate that one should be buying incrementally during this period.  The expected end of the buying period is indicated by the green dashed line which represents the prevailing trend (expect buying period to end around March 15th).

The "Super Signal" trend (Chart 2) has also shifted towards improvement and is no longer trending towards formation. Currently the signal is at  4.12 an improvement over last week from 3.95 (the 2nd week of improvement); formation in 2008 occured at 3.05. If this trend shift continues it will indicate that it should be relatively safe to remain invested in equity markets through 2012.

Chart 3 below displays the expected weekly trading range for this week between 1,265 and 1,368 (or +/- 3.91%).  A drop below 1,265 would be considered a significant move and a good buy opportunity.

Chart 1: 01/27/2012 S&P 500 Sentiment Signal (click to enlarge)

Sunday, January 22, 2012

S&P 500 Gains Steadily - Is It Time To Buy?

Last week the S&P 500 gained 1.95% and has posted 4.40% gains since January 1st.  It is not likely that the rate of gains is sustainable and so it is likely that we'll see a short term pull back in the market.   However, the "Sentiment Signal" (Chart 1) is indicating that it is time to re-balance ones portfolio to be more heavily weighted in equities (equities that tend to track the S&P 500).  Therefore, any short term decline in the market should be bought incrementally.  The trend of the "Sentiment Signal" is suggesting that ideally one should be re-balanced by mid March; or an incremental investment over about the next 60 days.

The trend of the "Super Signal" (Chart 2) is also confirming the "Sentiment Signal" and has actually shifted so that it is no longer clearly trending towards formation.  We'll watch this signal closely and if it continues to improve we may be heading into a very long term period (at least 1 to 2 years) of general growth in the S&P 500.   This is counter to the belief that Europe is  going to collapse any other day.  Although I keep one eye on the news, I follow the charts rather than the news because the news is often late to a story or trend change.

Some stability has returned to the market and we have seen reduced volatility.  This also supports the "Sentiment Signal".  The weekly expected volatility is now reduced to +/- 3.85% (nominal is +/- 2.24%) or an expected low of 1,265 and a high of 1,366 as indicated in Chart 3 below.  A drop below 1,265 would indicate a significant purchase opportunity or any drop of 3.85% on any one day.

Chart 1: 01/20/2012 S&P 500 Sentiment Chart (click to enlarge).

Sunday, January 15, 2012

S&P 500 Signals Indicate Buy Despite Europe

Despite the downgrade of European Bonds last week, the long term market and intermediate "Sentiment" signals are indicating that it is time to reallocate ones 401K towards stock or equity investments.  Based on the existing trend, the long term sentiment signal will cross zero in early March of 2012.  This indicates that there is approximately 10 weeks before signals will indicate a hold period. The hold period should last at least one quarter and is important for those investing in mutual funds, because it then offers the opportunity to transfer out of positions without penalty when sell signals display.  The expected trading range, as indicated in Chart 2 below, is +/- 3.96% or between 1,238 and 1,340 this week.  Any dip below 1238 or a -3.96% drop will indicate a significant buy opportunity; and during the buy period one should not only look for these opportunities, but should also set an incremental purchase/transfer schedule towards ones desired allocation (see investment strategy page).

Chart 1: 01/13/2012 S&P 500 Sentiment Signal (click to enlarge)

Sunday, January 8, 2012

S&P 500 Signals Buy Period

The S&P 500 long term "Sentiment" signal has confirmed and is signaling a "buy period" (see Investment Strategy page).  I will continue to buy on days when the market has dropped.  However, I will not just wait for days when the market has dropped below the expected low range.  I intend to rebalance my portfolio to be more heavily weighted in equities between now and the time that long term "Sentiment Chart" signal has crossed zero or until there is formation of the "Super Signal" (whichever comes first).  I believe it will take approximately  10 to 12 weeks for the long term "Sentiment Signal" to cross zero based on the current trend.  The expected trading range for the S&P 500 this week is 1,226 to 1,329 (or +/- 4.02%).

01/06/2012 S&P 500 Sentiment Chart (click on chart to enlarge)

Sunday, January 1, 2012

First Half 2012 Expectations Good For S&P 500

Expectations are that 2012 will be a defining year for the US economy and markets around the world.  It appears clear that we will continue to see high volatility in the market as investors try to gauge the best place to put their money for growth and safe keeping.  As long as interest rates remain at historic lows; we will continue to see highly volatile markets.  However, based on current signals it appears that equity markets (as a whole) will continue to improve up until the third quarter of 2012, and then all will be dependent upon perceived market improvement.    The "S&P 500 Sentiment" Chart 1 below indicates that sentiment has confirmed a positive trend and that we have entered a "Buy Period".  This means that a trend has been confirmed and that it is  potentially a good time to begin incrementally re-balancing ones portfolio to be more heavily weighted towards equities.  However, the increased volatility is making it increasingly likely for another market collapse.  This is represented by the "Super Signal" Chart 2 below.  The slope of the "Super Signal" remains negative and is trending towards formation.  Although the trend has improved slightly in the past two weeks.  If the Super Signal Forms, and it appears that it is trending towards formation in next 2 to 3 months, typically there is a peak in the market after formation (on average, about 60 days after).  I'll post more data on historical Super Signal formation later.

This week, as indicated in Chart 3 below, the expected S&P 500 range falls between 1,206 and 1,309 (+/- 4.04%).