LunaticTrader

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Posts Tagged ‘2016’

Stocks in 2016: why I like what I see

Posted by Danny on December 31, 2015

It is the last trading day for 2015, a good opportunity for a little look at what has been and, more importantly, at what may be ahead…
It looks like the S&P 500 will end the year very close to unchanged, which is quite rare. More on that below. The sideways range made it a challenging year for most investors. But our lunar cycles did exceptionally well: grabbing 833 points of profits for Nasdaq in lunar green periods, while sidestepping 555 points of losses in the red periods. See our lunar cycle tracking page. That’s as good as it gets in a flat market year. It will be difficult to do better in 2016, but of course we will try.

What about next year? I have noticed that a lot of major banks are calling for another flat year for stocks in 2016. Big banks rarely ever call for a bear market in their new year prognosis, so this is as bearish as they get. And other talking heads are joining the bearish bandwagon. IMF director Christine Lagarde is calling for disappointing global growth in 2016 and warns that the medium-term outlook is also deteriorating. So, we better sell our stocks before all hell breaks loose, right? Hmm, maybe…, but let’s think twice and first ask: when was the last time anybody made money by listening to Goldman Sachs or Mrs Lagarde?

Flat years in the stock market do not happen all that often. Defining a flat year as a year in which the S&P 500 index changes less than 5% from the previous yearly close I found only 11 such years since 1950. So, the odds that we will indeed get a flat 2016 is 1 in 6 or about 15%. Back to back flat years have not happened in at least 65 years. Maybe Goldman Sachs has fired all its quants, but the odds that they will be proven right in calling for another flat year do not look very good. Here is what has happened historically after flat years:

Flat Years

In all but one of those eleven cases a flat year was followed by a double digit % move in the ensuing year. Nine times the market went up and only two times it went down. In the nine up years the S&P 500 gained an average 17%, which is well above the long term average annual return of 7%.
I know, with only eleven cases the law of small numbers applies. But maybe the explanation is simple: a flat year makes investors lose interest in the stock market, setting the stage for a bigger move the next year if anything starts pulling them back in.
And that’s why I like what I see. With expectations rather subdued, if not pessimistic, the stage is set for a big move in 2016. I am looking for 2350 on the S&P and even that may be too pessimistic.

Happy 2016.

Posted in Market Commentary | Tagged: , | 1 Comment »

The case for Dow 32000

Posted by Danny on August 30, 2013

If you look at a long term chart of the Dow Jones Industrials it is interesting to see how symmetrical the advance since the 1932 depression lows has been.
You could turn the chart upside down around a point in late 1974, and it would look almost exactly the same.
This chart lines out some of these symmetries (click for much larger image);

Dow symmetry

If this symmetry is to run its full course, then it asks for a major high in late 2016 or early 2017. Feasible?

If the symmetry continues then the price action since the year 2000 peak should resemble the price action of the first 17 years since 1932, but mirrored. In the next chart I have done that exercise (click for larger image):

mirror

Lining up the 1949 bottom (becomes a peak in the mirror image) with the early year 2000 high gives a good match. While there are obvious differences, we can see that most tops and bottoms line up well.
Overlaying it directly we can get this (click for larger image);

mirror 2

Here I have matched the 1949 mirror high to the 8000 level for the Dow, which puts the correction low at 6470, which was the actual low in 2009. That sets out an upside target of 31130 by the end of 2016.
By the way, I have always thought that 8000 would have been the natural high for the Dow in 2000, if it hadn’t been for easy Al’s monetary policies.

Long term trend lines that have been in play for decades are also showing a convergence around 32000 by late 2016 (click for larger image):

Dow targets

Zooming in on the potential price targets:

targets

The most optimistic target is just above 50000, not one I consider very realistic, unless we get hyperinflation.

The trend channel that started in 2009 is targeting 30000 by late 2016. This advance happens to be climbing at exactly the same rate as the 1994-2000 bull market. Can this be kept up for three more years?
A few conditions will need to be met for this very bullish scenario to remain in play:
1) The current correction has to be shallow and cannot venture too far below 14000 before recovering.
2) The green overhead resistance line, connecting the 2000 and 2007 highs, will have to be overcome and left behind. That’s not going to be an easy feat. But with all the ongoing QE, who knows?
3) This breakout above 17000 would have to come by summer 2014.

If we get a deeper correction to 12000 or something, or if the market fails to break above the green resistance line, then 19410 becomes a viable lower target to be reached in 2016.

In all these cases, a 2016 top would mean the end of this symmetric pattern, and may be followed by a 1930s style crash and depression. That would take the Dow all the way back down to 4000-5000 by 2020.

Let’s just see what happens.

Danny

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Posted in Market Commentary | Tagged: , , , | 13 Comments »

 
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