Saturday, December 30, 2006

Predictions - SPX

Here are some of my ideas for the next year and they will probably astound and confound but that is OK. First, this bull market that we are in is just begun. What went on between 00 and 03 was merely a correction, a pause to catch its breath. How do I know? If a stock goes from 0 to 15 and then retreats back to 7.50 it is considered to be a 50% re-trace and that is a good thing. Take a look at the SPX presented here in a quarterly view. Note how it went to 1500 and then retraced to 750. Personally I think that’s just a coincidence but that’s how a mini-bear market behaves.

But I do know that the distance from the 21 EMA to the close Friday (b) wasn’t half the distance that we saw back in 2000 (a). Nor has there been a huge build up in volume – nor has volume declined – in fact, if you squint really close you might notice that volume pretty much stays the same.

After the “correction” or whatever you want to call the period between 99 and 03 you can see that it took almost a complete year for EMA 4 to cross over the EMA 21. Once it does that and it keeps going up until it runs out of steam. And it doesn’t look as if that is going to happen any time soon. In fact, on the following chart you can see that there have been exactly 3 times in its history when the EMA 4 dropped through the EMA 21 on the quarterly charts.

So while we might have a red quarter or two every now and then – a major correction seems to be very rare. And, if you are like me – you can’t help but notice that a red quarter is generally followed by an amazing buying opportunity.

Therefore, based on this non-evidence I predict a 168.00-point year for the SPX.

I'll be back later for my guess on the Industrials.

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