Tuesday, March 27, 2012

What Next for the S&P? Bullish Outlook

The past few months have been very good for bulls with the S&P adding 22% since the 2011 November swing low.  When analysis on projections for the S&P was done a couple of days after the November swing low, there was no clear advantage for either bulls or bears. The conclusion then was:

In summary, despite the projection uncertainty, there appears to be more on offer for bulls than bears. Although context should be drawn from a January 2011 projection which currently requires the S&P to rally by over 6% in the space of a couple of months, just to meet the low-end of the 95% confidence interval range!

Looking at the January 2011 projection, at the time of writing the S&P was trading at 1,276. One year later it was at 1,316, a 3% gain; this failed to meet the low-end expectation of the 1-year projection. Effectively, the S&P at the end of January was well below the bullish expectations of a year ago. Since then, the S&P has managed to add another 7.5% to make its position more respectable, but has it reached a point where it could be considered fair value? 

As of March 26th the S&P was 12.0% above its 200-day MA, 4.6% above its 50-day MA and 2.4% above its 20-day MA.  How has this compared in the past?

While the S&P is currently bullish it falls just outside of the top 10% of bullish extensions from the 200-day MA (No. 1 spot is held by November 3rd 1982 when the S&P was 23% above its 200-day MA).  Looking back to 1950 there were 19 historic matches to the current scenario.

Interestingly, back in November 2011 the S&P was matched to April 2003; currently the S&P is matched to September 2003, so the events of 2003 still hold relevance. 

The other aspect of note was the clustering of matches; three for 2003/04, five for 1995/96/97 and three for 1954/55.  All clustering occurred in strong bullish environments.  In fact, with the exception of 1959, all the matches offered a bullish outlook for the year ahead.

The Mean and 95% Confidence Interval offered a very bullish outlook going forward

Whether the S&P disappoints on that projection, as taken from January 2011, remains to be seen. Of the 19 matches, only in 1980 was there a significant decline in the month following the match - shifting a 10% loss before recovering a net 4% gain after 6 months.  So while future weakness can never be excluded it would be surprise if losses lingered beyond 6 months.  Traders can use Zignals Alerts to help track the S&P or its SPY proxy.


Follow us on twitter here

Dr. Declan Fallon, Senior Market Technician for Zignals.com, offers a range of stock trading strategies via his Zignals home page. Each Zignals member has an unique home page which they can share with friends and clients to sell their strategies.

Zignals offers a full suite of financial services including price and fundamental stock alerts, stock charts for Indian, Australian, Frankfurt, Euronext, UK, Ireland and Canadian stocks, tabbed stock quote watchlists, multi-currency portfolio manager, active stock screener with fundamental trading strategy support and trading system builder. Forex, precious metal and energy commodities too. Build your own trading system and sell it in our MarketPlace to earn real cash. Read what others are saying about Zignals on Investimonials.com.


blog comments powered by Disqus