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A prediction about the S+P 500

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September 28, 2013 – Comments (4)

I like to make predictions in this space sometimes.  Rarely, actually, when it comes to a macro call.

But a couple of weeks ago - S+P hit 1720 and folks were awaiting the Fed's latest decisions - I began to feel a prediction coming on.

When I make a prediction, I like it to be no-nonsense, empirically verifiable/falsifiable.  None of this "S+P goes up until Fed reverses QE, then it starts falling again."  That's a bunch of poppycock, anyone could argue for days about whether or not those conditions were met or not.  I like a numerical prediction, where later on, anyone could easily say, "Yes, this happened," or "No, this has not happened yet," or "No, this did not happen, what actually happened was something different from what was predicted."

 I also like a prediction that makes a bold or actionable statement, one that could make someone some money if it came true and they'd positioned themselves accordingly.  Predicting that Apple pays its dividend next quarter is all very well - I'm sure it will, by the way - but who cares?  A good prediction has to be at least a little more interesting than that.

This prediction doesn't have a time frame, just S+P levels.  I think that before the S+P closes below 1500 again, it closes above 1920.  I then think that it does not close above 2000; instead, the next thing it does to satisfy this prediction is close below 1500. 

Why did I make this prediction?  I think S+P is fairly valued around 1720 now, maybe a hair overvalued historically, but reasonable today, given the kind of slow growth, low rate environment that we enjoy and probably will continue to enjoy for some time.  The market tends to overvalue the S+P in the latter months of a bull market, and I think that in general that is what is trying to happen now, and will happen over the next 6-24 months (don't quote me on the timeframe!)  Portefeuille watchers will note that the S+P is just playing around with touching his middle trendline; I am talking about the same thing, but based on balance sheets and CEO predictions about the future, not so much technicals.  I like it when my gut check about those things agrees with a trendline; it makes me feel like I am on the right track.

I picked the number 1920 out of a hat, but it feels right to me.  It's pretty close to 15% over "fair" as I see it.  2000 would be getting past 20% over "fair" and the S+P rarely does that; when it gets near that it's ripe for a correction, which usually takes it down 25-33%, if not more.

So there you have it.  I challenge you, reader dear, to make similarly verifiable/falsifiable predictions in your own blogs, if you like; and, if you care to, leave a comment here when you do. 

4 Comments – Post Your Own

#1) On September 29, 2013 at 4:37 AM, portefeuille (99.66) wrote:

I made my prediction in June 2009. Still looks alright :)

http://caps.fool.com/Blogs/chart/869890.

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#2) On September 29, 2013 at 12:26 PM, awallejr (79.49) wrote:

That chart goes up there along with then Fast Money's Jeff Macke's summer of 2008 Oil top call when it fell below the "crayon" trend line.

I think it too hard to answer until November.  I don't know how fiscally suicidal these House Tea Partiers are and I want to know who the next Fed Chairman will be.

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#3) On September 29, 2013 at 2:02 PM, portefeuille (99.66) wrote:

my updated chart.



enlarge

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#4) On October 03, 2013 at 1:05 PM, ikkyu2 (99.22) wrote:

Here are some things that are dead in the water:

The Tea Party

Interferon therapy against multiple sclerosis

Apple, Inc.'s, ability to stay competitive through innovation

Typewriter ribbons

Buggy whips 

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