Hope you guys enjoyed my previous post on S&P 500. The much needed relief rally has come through, thanks to the Fed Chair Mr Powell’s (what appeared to be) dovish statements on Jan 4. However, after what happened with AAPL a few days ago (lowered guidance and problems in China market), and the negative outlook developing for autos, retail and a few other sectors as evidenced by the 2019 guidance released by some companies, I now have more conviction about the continuation of the bearish trend that started in Oct 2018 (for the next few weeks at least, we will deploy the “Sell/Short the Rips” mode, once again). Here is my forecast for the DOW for the next 6 – 10 weeks.
S&P and DOW:
While an “extreme target” for the S&P 500 would be 1825 (as explained in the previous post), I have a conviction target of 2100 – 2150 for Q1. For 1825 to happen, markets have to crash and for that to trigger, we need more confirmatory signals on a 2019 recession + escalation of the trade wars (please don’t get me wrong, I don’t wish for either event). But 2100 – 2150 for the S&P and 20450 for the DOW look quite feasible for Q1 irrespective of the above 2 factors simply as a long overdue, deep correction for the markets. It is not my wish again to see such a deep correction but there are enough signals on the charts that can lead us to those targets.
These targets have been derived after a careful analysis of short term and medium term technical indicators. Moving averages, Momentum oscillators and FIB levels play a significant role in my technical analysis while at the same time, I keep looking at the Fed policy, currency moves & macro-economic data for confirmation / validation. So far, I have a 80-82% success rate with my forecasts and so, there is obviously scope for further improvement. So take the forecasts with a pinch of salt.
First, here are the conservative targets (also “conviction” targets as I see 90% probability of these targets being met) for the 3 US indices and Gold:
DOW: 20450 (1 – 3 months)
SPX (S&P 500): 2100 – 2150 (1 – 3 months)
NDX (Nasdaq 100): 5600 – 5700 (2 – 4 months)
GOLD: 1500 – 1550 (3 – 6 months)
And here are the aggressive / extreme targets for 2019(in the event more recessionary signals come through or if the indices break those “conservative target” levels)
SPX (S&P 500): 1800 – 1850
NDX (Nasdaq 100): 4750 – 4800
Now you might ask: Are there any bullish targets at all for 2019? Yes, I do have one for the S&P 500 which is 2775-2825 but it comes with a couple of qualifiers:
(a) The bullish target is valid ONLY if the markets stop with just a correction to the “conservative target” levels listed above. If they drop below those levels and the recession fears are confirmed, then the bull target won’t be valid.
(b) My forecast for 2019 is “NO new all-time highs” for the first half of the year UNLESS TRADE WARS ARE COMPLETELY RESOLVED. For the second half of the year, it is a 50:50 chance & is subject to whether US avoids a recession or not by Q3 2019.