Similar Markets Lean Bullish Longer-Term (Updated)

By: Chris Ciovacco | Tue, Apr 17, 2012
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Late last summer our Similar Markets Model (SMM) identified 1998 as a market with similar technical characteristics. As it turns out, 1998 was an excellent road map for the last eight months. What is the SMM saying now?

Below is a summary table of the similar markets study described below. We found eighty-one weekly cases with similar historical profiles to the present market. Looking out eight to twelve months, in 89%-91% of the historical cases, the S&P was higher with an average gain between 10.38% (eight months) and 24.57% (twelve months). The risk-reward ratios were favorable looking out on all time horizons, but especially so between three and twelve months.

RR Ratio S&P 500 Index

The SMM compares current daily, weekly, and monthly 80-20 Correction Index values with historical values. The model also identifies periods with similar Bull Market Sustainability Index (BMSI) readings. We ran the model early this morning. The results lean toward favorable outcomes over the next 12 to 36 months.

The periods that were most frequent in terms of similarity to the present day clustered in 1991-1993 and 2004-2006. As shown below, both periods offered very favorable long-term results for investors.

$SPX (S&P 500 Large Cap Index) INDX

We are collecting data for all the periods identified in order to calculate risk-reward ratios for markets similar to what we have today. We will post the results when they are available on Short Takes.

$SPX (S&P 500 Large Cap Index) INDX

It should be noted that mid-October 1987 was identified as one of the similar periods. The '87 crash began on October 5 with a bottom coming on October 19. From a longer-term perspective, October 19 was a good day to invest, but October 5 was a terrible day to commit new capital.

If the situation in Europe can resolve itself in a somewhat orderly manner, it is reasonable to believe in a more favorable environment since Europe has been a drag on the markets for over two years. If the situation in Europe unravels again, it is very difficult to envision bullish outcomes.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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