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%).
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| Chart 1: 12/30/2011 S&P 500 Sentiment Chart |
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Chart 2: 12/30/2011 Super Signal Chart
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| Chart 3: 12/30/2011 Expected Market Range & Volatility Chart |
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