The Stock Market Is Likely Taking Summer Break
S&P-500 Index Drop from May 2 to June 8, 2011
Major stock market indexes slowly went down during the last several weeks, from May 2 to June 8, 2011. Since this decline has already broken a few important technical chart levels, many technical analysts believe that the trend might continue with sideways moves for a few weeks ahead.
Except seasonal reason, this May stock market decline was also caused by fundamental factors. The US corporate profits in the first quarter dropped for the first time in more than two years. The US unemployment rate in May increased from 9.0% to 9.1%. It looks likely that investors overreacted to strong corporate earnings at the beginning of this year. Economists believe that the government stimulus money could have artificially inflated the market. Evidently, without additional money injection the US economy would undergo a transition to a self-sustaining recovery.
From the fundamental point of view it is not clear how precisely the ending of stimulus is reflected in the current market evaluation. So that when the bond-buying program ends at the end of June, the US stock market might reach a more accurate equilibrium. Other surprises might be brought by the second quarter reporting season.
Technology Sector Might Do Well During the Next Three Months
The chart below shows the comparative analysis of expected sectors’ performance for the next three months – April, May, and June of 2011. The 11 sectors (no data for Conglomerates) have been composed of selected more than 500 US and Canadian stocks. Apparently, Technology and Financial sectors look the best:
The chart has been calculated using Investment Analyzer InvAn-4. The calculation is based on a rank of stocks. Sector ranks distribution allows making comparative analysis of sectors’ ratings (sectors are formed from the stocks recorded in InvAn-4 internal database). The highest ranked stocks are expected to be the most probable best performers within the next three-month period. Stocks are ranked on the basis of the composite rating which is a combination of fundamental, technical, and timing ratings. Such combination allows realistic modeling the quality of a company and its stock in the market.
S&P-500 Index Cycle Analysis Forecast for the Next Several Years
There is a simple forecast that is built on assumption that the stock market has a cyclical nature. The cycles may not be stable all the time but the probability of repeating cycles can be high enough to use the cycles by stock traders and investors for their benefits. The cyclical nature of the market can be masked by more powerful factors (fundamental data, bad/good news, global events, etc.) that over-drive the market time-from-time. Many technical analysts use cycle predictions in their comprehensive analysis.
One of the result-sensitive parameters in the cycle analysis prediction is a historical period that used to extract the cycles from a curve. The prediction can be very different depending on the historical period that is chosen. One of the stable cycles that is observed for the recent decade is a seven-year period. The chart below shows S&P-500 index forecast for the next several years. The calculation has been performed using Stock Market Predictor SMAP-3. According to this forecast the stock market might continue its uptrend with natural short-term small-amplitude sub-cycles until 2012-2013.
Until the Middle of November S&P-500 Might Be Still Good
The stock market during a month ahead might be driven by a few expected fundamental news. Nevertheless, technical factors can give some additional momentum for the market. In October, S&P-500 gained more than 3%. The last four weeks, S&P-500 weekly performance was 1.65%, 0.95%, 0.59%, and 0.02%. The trend does not look optimistic. However, according to a cycle analysis, October’s uptrend cycle can be still intact. The chart shows a possible resumption of uptrend until November 11:
The forecast was calculated using software tool SMAP-3. A cycle prediction is based on the hypothesis that statistically revealed cycles may be repeatable in the future and, therefore, they can be used to build the summarized curve of future movements.
Technically S&P-500 May Be More Green than Red for the Next Two Weeks
Technically, S&P-500 index expected to be bullish during the period of October 4-15, 2010. According to the results of two different software tools for stock market, the behavior of the index is predicted as somehow between uptrend and sideways. However, technical predictions may be overwritten by changed fundamental-based expectations. The technical indicators are built on a historical predisposition and may work well if other informational factors are unavailable or new information still keeps the existing balance of future expectations. Technical methods are unable to predict most fundamental news, for example, the numbers of GDP or unemployment rate that will be announced.
Pattern Prediction Worked This Time – Is Stock Market Predictive?
The last two-week prediction using pattern similarity was pretty good:
The question is if we can trust and use the only one such prediction for investing. Pattern recognition system is based on the statistical classification of patterns assuming that the patterns are generated by a probabilistic system. “Probabilistic” means that sometimes an expected thing happens, sometimes does not. Yes, some patterns can be repeatable in the future, therefore, the selected present patterns can be used to predict the future pattern. However, statistics evidence that the prediction can be wrong.
Basically, average stock prices are almost continuous function of fundamentals. The stock market performance depends on the strength of the companies and the economy as a whole. Such things are quite transparent and predictive to a certain extend. Least predictive factors (noise) are natural disaster,
political event, published news, investors’ psychological reaction to news or event, etc.
If we try to calculate the value of “patterns” predictive factor, it might be a relatively small amount – around 20-40%. So that it is wise to analyze information from multiple sources to make a more comprehensive conclusion. There is always a risk involved in stock investing. In fact, historically a stock market crash is a result of combination of all factors – short, medium, and long terms, predictive and non-predictive. “Non-predictive” means – there is no way to know for sure about this in advance.
© Alex Shmatov. Published with permission of the copyright owner. Further reproduction strictly prohibited without permission.
July 2010 Stock Market Technical and Fundamental Forecast
S&P-500 Technical Analysis Forecast. The forecast based on cycle analysis (charts below by Stock Market Predictor SMAP-3) indicates a possible uptrend around 2-8% in July.
S&P-500 Fundamental Analysis Forecast. There are four negative factors (at least) that may drag the stock market down in July: (1) inadequate fundamental data for a fast economical recovery; (2) sluggish market summer season; (3) the lack of good news; (4) re-adjusted investors expectation.
Sectors Comparative Analysis for Summer 2010
Each stock belongs to a general market, a particular sector and industry. An individual stock performance depends on the general stock market performance, as well as, on the sector performance. History evidences that different sectors perform differently in different periods. Therefore, choosing a right sector at the moment of investing can increase the chances of successful outcome.
The chart below shows the comparative analysis of expected sectors’ performance for the three months of 2010 summer. These 12 sectors composed of more than 500 US and Canadian stocks. Financial and Healthcare sectors look the best, the Energy – the worst. The question still remains if the stock market is going to be bullish this summer.
The chart has been calculated and plotted using Investment Analyzer InvAn-4. Its calculation based on a rank of stocks. The highest ranked stocks are expected to be the most probable best performers within the next three-month period. Stocks are ranked on the basis of the composite rating which is a combination of fundamental, technical, and timing ratings. The combination allows modeling quality of company and its stock very realistically.
Knowledge Is Power
Knowledge is power; and unlike other resources, it does not diminish when it is shared but multiplies. Expected performance of a stock depends on quality of the company, market evaluation of its stock, and macroeconomic environment. Also general market conditions and news are significant contributing factors in stocks performance. That is why, a good investing decision should be based on a multi-dimensional consideration of many criteria. Consequently, one of the optimal solutions is to use fundamental, technical, and timing analyses together …read article "How to Become a Successful Investor"
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