timwest
Long

2016 FORECAST S&P500 INDEX - RATIONALE WITH HIGH 2112, LOW 1868

INDEX:SPX   S&P 500 Index
9273 95 134
I only have made 1 forecast for the entire year in each of the past 4 years. The market rarely does what the majority thinks it will. So I do my best to be sure that I am not in the majority. Last year I was neutral expecting choppy action when everyone else was very bullish . This year with many bears, therefore I do see another sideways year this year, but with a strong finish. Why? Read to the end.

Here are the very bullish factors supporting stock prices:
1. We have likely seen a massive wipeout of margin long positions here. I need new data to confirm.
2. We have blown up psychology with massive bearish psychology at hand. (This is very bullish )
3. We have a weakening dollar (this is bullish )
4. We have very low interest rates (this is bullish )
5. We have very low input costs ( oil             and labor, this is bullish )
6. We have a massive melt-down in biotech happening (this is bullish )
7. We have a 25% corrections in place in the Nikkei and the DAX             (this is bullish )
8. Massive bearish sentiment by major brokerage firms for 2016. (Last year they were all bullish looking for an up-year of 10% on average and they were all wrong)
9. Terrible technical conditions (breadth, divergences, etc) - These work in contrary ways. Everyone sees them as negative. They are negative when people are selling to raise cash (which is bullish ).
10. Very high corporate profit margins (very bullish ).
11. Plenty of corporate cash on hand for mergers and acquisitions ( bullish )

So the foundation of the market is very very constructive from many perspectives.

The negatives are:
1. Rapidly rising default risk around the world as ZIRP and NIRP takes hold.
2. Falling PMI's signal softening economic activity
3. Corporate Buybacks can't continue forever, especially with rising default risk
4. Rising rates to corporate borrowers (Rising yields on HYG             , falling HYG             prices)
5. China: Weakening outlook. Drawdowns in reserves to support an overvalued currency. $99 billion drop announced today to the lowest levels since 2012.
6. Jobs numbers in the US have massive seasonal adjustments which are hiding the worst numbers we have had in many years.
7. Demographic challenges means that US Growth will stay low (and steady) for two more decades. Read Harry Dent's books.
8. China's demographics are where Japan's were in the late 1980's and very bearish long term.

Those are the main points that I have in my head at the moment that will see-saw prices back and forth across the range for the remainder of the year.

The reason for the strong finish to the year? The election will be out of the way. The election is having profound impact on psychology and the year-end will be a strong quarter, I do feel.

The low 1868 is for the balance of the year from now, Sunday February 8, 2016 1880 last SPX500            
Comment: 41 likes out of 1744 views as of Feb 10th at 3:30PM. This is my normal 2.5% or less "agree" rate.
Comment: Great rally out of the bottom end of the range. The 1812 low held from the "panic-1812" bottom forecast from last year. Overall, I think you can see that big rallies can occur from periods of very low optimism.
Comment: So far, we put in the bottom for the year despite all of the bad news, Presidential election disaster, Negative Interest Rates (which is really QE Infinity). The low at 1812 looks like it is far enough in the rear-view-mirror.
Comment: I think we are putting in the "RELIEF" rally high here. The rally happened faster than I labeled it out, but it looks like we have "HORROR" ahead of us. The reason for the rally? Well, how about the reason for the decline first.
1. Foreign currency trade unwinding from new regulations reducing leverage in currency trading forced traders to buy back their short-Yen positions and close out their corresponding trades that were financed with cheap and weakening Yen.
2. Crude oil - trying to find a bottom, and then bottoming/rebounding on short covering to the $40 level from $30-$26 at the low end.
3. Earnings forecasts dropping - led to a drop in valuations
4. Presidential elections - The extensive rhetoric the candidates throw around makes people nervous. As candidates drop out of the race, people are comforted. Overall, I believe America is very nervous about the current slate of candidates, which keeps a lid on the market this year overall.
5. M&A - China has already completed more M&A deals than all of last year, which was more than any other year. So, fears of China collapsing led to the decline and the rebound has been from people realizing the fears may be overblown.
6. Corporate buybacks - buyback are running stronger than at any time in the past. I did not foresee this in my previous comments. The fact that there are no projects or takeovers to complete tells me that valuations are "fair" for competitors and that there is ample credit available to corporations and there are no great investments to make in plant & equipment. This all speaks to a flat market for the year.
7. People who believe a weak January means a weak overall stock market may have sold out, but I sure hope very few people follow an investment strategy based on such ephemeral analysis.
8. Margin debt accounts may have waited until the New Year to sell positions to push capital gains into the following year, which is tactical. The level of Margin Debt is so closely correlated to the stock market index that it is truly a sign of investor confidence. However, it is not leading or lagging, but we get the data with a delay, so you have to be creative with this analysis.
9. The Fed: The December tightening forced investors to consider unloading shares and then by the time January-February came around, Japan went to Negative Interest Rate Policy (NIRP) to join Sweden's NIRP and the Fed said that negative rates could be considered a policy option in the future and all of the sudden we have an environment of Fed accommodation, which helped the market return to its previous price levels.
10. SO THERE you have it. I suggest you follow @LizAnnSonders at Twitter as she has the best fundamental data out there in beautiful graphs and common sense explanations. You'll really appreciate it if you check her out.
Comment: Nearing the "top end" of the forecasted range for 2016 where I put 2112 as the "Euphoria" level for year end, which would be AFTER Presidential elections. I don't see "Euphoria" here at all. This is a very strong relief rally, but there is not a lot of "belief" to go with it. There is a lot of doubt about Central Bank's ability to keep money cheap and deep concerns about levels of debt. Shorter term traders are heavily short the market here and investors are not committed to the long side here. We have a strong "wall of worry" to keep climbing and grinding higher. I will be on the lookout for how companies react to earnings reports this week (April 18th-April 22nd) to find any new information. Last quarter earnings of the DJIA components beat expectations (substantially lowered, of course) in 29 of 30 stocks. I would expect the same again this quarter. What we need to watch for is forecasts for revenues and comments by CEO's about margins. Remember though, keep an open mind. I believe there was very little faith in a market bottom earlier this year when I was outlining all of the reasons why we were bottoming. Now I see a lot of doubt about the rally as it reverses all of the losses from the 4th quarter. I look forward to your comments and questions and finding the right time to exit the long side of this market.
Comment: My comment below from "15 days ago"
"Ready to update given the swift lift in sentiment to multi-year high readings... a top is near. It looks as if we hit 'euphoria' on the likely nomination of Clinton for the Democratic Party. Earnings were lackluster for the latest reporting period and the US Dollar has slightly helpful year-over-year rates of change. I'll suggest writing 6-9 month AT THE MONEY CALL OPTIONS against any market positions. With VIX elevated to 17 from a recent 13, this could be a decent return as I assume a sideways market for the balance of the year. 2096 last SPX."
I hope you all took notice.
Tim
Comment: As for the GUESS for the DJIA's earnings PRE-EARNINGS season, it was for a total of $38.27 and it came in at $37.85. SO, that means earnings were revised down through the course of the earnings season and then the companies (27 of 29 so far) BEAT those lowered estimates (1 trailed, 1 tied). Which goes to show you that if you can't forecast correctly, forecast OFTEN! That way people ultimately forget what you forecasted. This is how the system works. The comments from 5 months and 3 months ago are still decent. The recent drop of 394 point (>2%) in the DJIA heading into the 15-year anniversary of 9/11's crash has everyone's nerves on end. And now the the Presidential race a total disaster, HIllary's health in question, Trump's sanity perennially in question, and lackluster earnings forecasts, war-mongering everywhere in the world from North Korea setting off an atomic bomb, and the eternal "China is imploding financially" calls, and it makes for feelings of "DESPAIR". It is quite interesting to have this level of negativity and despair when we are just a little bit off all time record highs. I'm still staying with the forecast for the year, which is sideways. I'll be in the "KEY HIDDEN LEVELS CHAT ROOM" if you need me.
Comment: Extreme bearishness is rampant, especially from the AAII survey which is down to a 5-year low of 22% bullishness. This is nothing short of remarkable, but it is understandable given the vile attacks going on between the Presidential candidates and the lack of sound judgement from either one of them (especially the 4-minute delay to launch our nuclear response), the lackluster earnings forecasts, the withering economic activity (as we watch the unhappy future for the United States from either one of these candidates), rising crude oil prices, Russian aggression, attacks on humanity (even crazy clowns, and police shootings), and the extremely biased news reporting by the media (covering the ultra-sad state of affairs in the US). The ultra-bearish comments by billionaires over the course of the past few months has us all still nervous and the constant "chicken little" calls about China collapse weigh on our collective consciousness. Brexit fears still are high and Draghi's ECB actions are never enough. The banking system in Europe is still highly leveraged and losses haven't been recognized yet. How do we stay positive amidst all of this negative news? Well, by understanding that people are already on the sidelines sitting in cash waiting for prices to fall. In reality, we need to have sellers to drive prices down. So, there may not be a reason to buy, but the reasons to sell are behind us.

So, what are we to do? Calmly, patiently watch the next 15 days as the companies report earnings and forecasts for the next quarter. Expect guidance down as things have softened in the past few weeks.
Comment: I think we may have seen "DESPAIR" last night as the election results rolled in and the S&P futures were lock limit down at -5%. The USDMXN had surged to near 21, up nearly 10% from 18.5 that day. Crude oil was down $2 to $43 as bears piled on to get the market to break support levels to trip more sell orders. Sentiment is about as bleak as I've seen it in many decades and with the stock market "appearing" to be rolling over to most people and with earnings softening. The market looks further out than one quarter, but we need perspective and time will provide that for us. For now, I'm sticking with "muddling along" sideways. Stocks may look like they have a long way to fall, but it doesn't mean they have to. The market is awash in cash (that's the bubble, by the way, cash holdings) and also in short positions which will support the market on any declines. Keep your head firmly on your shoulders and look at the values you can find in the market: Airlines, Automotives, for example, have strong earnings and cash flow yields.

See you in the "Key Hidden Levels Chat Room".

Tim Nov 9, 2016 7:31AM EST
Comment: My 7:31AM on Nov 9th comments saying the market is at a bottom are hopefully worthy on note and attention. The market had come off of "lock limit down" so In hindsight you might say "Well, it was obvious" but I think you can consider sharing the link to this page to your friends and acquaintances who could use a wise word or two from time to time. Encourage them to "follow" me here at TradingView and to navigate these markets week by week (not minute by minute). I don't overwhelm you with endless trading ideas and non-sense. Instead, I show you the big picture and give you reasonable logic by which to make a decision, using a combination of market sentiment and fundamental valuation to back up my point of view. I look forward to hearing from you and hope you can spread the word about TradingView and "those annual forecasts from Tim West". November 19, 2016 5:40PM EST
Comment: 2017 FORECAST - S&P500 INDEX - Daily

Here we are again: January of a new year. The election is behind us. And the recount is behind us too. So many bombs dropped over the last year, both real bombs and word-bombs by Presidential candidates. The word-bombs seem to get all of the attention with Trump winning the "best word bomber" last year by Time Magazine as the "most noteworthy" person in the world. Now with that out of the way, once again we have the same variables facing the market: plenty of headwinds and tailwinds. See 2016 list, to your left in blue.

I like to start with an understanding of what "expectations are out there" and I do that with the Wall Street consensus for the Year-End S&P500. I added that with the RED BOX at the top which is around the 2300-2400 range. There are some above and below that range, but that gets 90% of the estimates.

The 2085 level was the launching point of this latest advance from before the election and that level was retested in the hours after the election results indicated Trump the winner. The market action up until that point, together with the lowest-ever-50-week readings of AAII Investor Sentiment Readings indicated to me that we had COMPLETED a bear market at this point in time. I view a bull market as 20%+ so a move to $2500 in the S&P would accomplish this technical feat. With plenty of skepticism, fears aplenty, high cash, massive retail selling of equities and mutual funds, high short positions, and "no bear market in prices" suggests very strongly that a 20% rally from 2085 is likely, and possible.

What I foresee happening in the first half of the year is the time window for Trump to get the most on the table for pro-growth, tax-cut, red-tape-cutting, Obama-care bashing, "Make America Great Again" pushes for change in the House and Senate. I hope we see Reagan-like Investment Tax Credits, Cuts in capital gains tax rates for young and small investors to get investment capital moving and to get banks lending again.

The second half of the year, especially towards the end of the year, I foresee a correction in prices back to the start of the year on signs that there is friction in the Republican Party and fears to make bold and broad changes to the tax laws and concerns about the credit rating and borrowing capacity of the US. The Democrats will be stalling with threats to shut down the Gov't and doing everything in their power to stop the changes Trump is pushing through.
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You know i am reading these updates - I like the logical prognosis for the 2 parts of the year. Thank you Tim.
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Yes, it is this extreme bearishness amongst traders, investors and global funds that is really keeping S&P500 and Nasdaq 100 in the stratosphere without breaking down, and even when it breaks down, the cash on sidelines just does not let it touch any of the support levels / Fib levels / EMA levels, but bounces right back up, as if they were hungry to invest. Now, someday this party has to end, but with Hillary = Bull and Trump = Bear thought process going on, and the edge that Hillary has, you might be right about the Net-Bullishness around the corner. Mix that up with the earnings right now, bullishness in some of the Asian markets, and we have a combination of markets climbing up the wall of worry.

I am playing the entire market through options instead of playing with full equity positions which limits my risk, while maintaining a small short position. But, I am a small investor with majority in cash and real estate which I am enjoying more and driving deeper into the real estate since 2008-09. Yet, at the end of the day, I think investing in India and China are the future, and hence Value Cost Averaging into those markets with the belief that regardless of Hillary or Trump or the next president, our time is being the Super-Power is almost over (see the 250 year cycle analysis on the net), and therefore, what British Empire faced a few decades ago, is going to repeat itself with the power status changing. So, when I hand the portfolio to my kids, I am not told 'what was I thinking about putting all my eggs in the US basket'!!!!!
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timwest PRO kenny1924
@kenny1924, Thanks Kenny for your comments. Nicely worded and well thought out. How do you participate in real estate? Residential or commercial? Through REIT's or direct investing? Thanks for sharing and look forward to more comments from you.
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kenny1924 timwest
@timwest, I am doing RE with direct investing into apartment buildings / houses / condos. In addition, I am putting money into REITS. And, soon getting into Crowd-Sourcing so that it is all distributed well. Of course, the direct investing into RE will make the most money since there is no one between the Building, Tenants and Me. It requires some personal time, but if one manages it well, it can be as little as 16 hours month which was my 2015 average, and I have not computed my 2016 average as yet, although it will be right around that number. And, those hours are in the evenings and weekends for the most part except when there are inspections.

I think our economy is going to flourish with Trump just cause he knows how to keep things afloat, but at the same time, his in-experience is going to show up and as a result we will have mis-interpretations for a day / week / month and hence we will have sharp moves (up and down) and hence playing the VIX might make a bit of sense. But, then playing options against the positions also will work great.

If and when a stock sells off violently due to Trump comment, Sell Naked Puts. If a stock takes off due to his comment, Sell Naked Calls. Of course, have the account size to tolerate the downside of both situations, and do it for stocks that one wants to own or play.

Who knows? The future is SO UNKNOWN that any interpretation whether it is GANN or FIB or Funda or Eco based is going to have such as systemic risk that it is going to break down. Even the most expensive Astro Guy that I know (no names) said we will take off with Hillary and she is going to win, and we will go down 50% if Trump wins. And, history right now shows that it has not happened (no Hillary win, and no Trump bashed market)!

I am hoping that the Margin Ratio at NYSE comes down a bit, the PE ratios are within good range after Jan numbers, the PB and PS ratios behave within range, and we get more Dividend increases in 2017 due to buy backs and organic increases taking the P/D ratio into favorable range.

Love to see your 2017 forecast, and hoping that you are going to be "range" based.

Kenny
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timwest PRO kenny1924
@kenny1924, Thank you Kenny. Excellent insights and information. I have only heard and read about the crowd-sourcing real-estate, but haven't participated in that yet. I'm curious about the owning a building and having tenants, but I would need to have the right manager to handle the day-to-day situations. I like the idea of 16 hours per month, but not sure it will work for me.

The economy - agree there.
The market - agree there too.
The pundits who said Hillary would win and the market would rally - or fall if Trump won... We always have to deal with that noise.
The fundamentals: Margin debt is high, and so is short interest. The PE is fine, given low rates and low inflation. The P/B and P/S depend on what industry, debt, growth and margins look like, so I'm not an "overall market P/S or P/B" analyst because the stocks in the index now are so different from the stocks 20 years ago. They just aren't the same. Dividend increases oddly enough correlate with market tops historically, but I get what you mean that you want to see more there to support valuation.

Psychologically, I see Trump having a 6 month honeymoon phase before people begin to really push back and become sand in his gears of progress. I think a mid-year update will be needed this year as we see what is able to be cleared through Congress and the Senate and become law. We will really see who is a believer in capitalism and who is a bureaucrat by what laws get through. I'm hoping for plenty of "investment friendly" tax laws that give tax credits for new investment, hiring and long term commitments to development.

So, I see the upside being more logical in the first half and a correction in the second half, tending toward the back-end or the last quarter.

Happy New Year.

Tim 8:51AM 1/10/2017
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"Expect guidance down" do i read your sentiment as bear?
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I've just finished reading this entire sequence of comments and I'm worn out. So far, the earnings coming out are more positive, but recall executives might want to soften expectations for the coming quarter given the uncertainty of the election and the fact that things have likely been very soft for the past few weeks, which portends a weak quarter. I believe the amount of short positions and the amount of cash on the sidelines will minimize the downside potential here to a large extent. Also, with sentiment at 22% bulls, the lowest in ages at AAII, I think there is very little downside at all. Consider what INTC reported where they guided down expectations. We have a lot of earnings reports left to review, so be attuned to those as they come out.
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So, I'm not "bearish" but bullish with some acceptance of some downside in the near future, but more and much more upside after that. If Hillary wins and comes out with a huge new tax, then all bets are off and the downside will be more likely.
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2use timwest
So i read you are starting to take it to the sidelines once the election results are out and if Hillary wins? I suppose some would take it down already then in fears of the policies she may propose.
About the bull case - well, i like the sentiment analysis, but is there that more ground upholding the higher highs case? Dollar is also rising currently and we are already on all time highs, if i play the bull card it will be of course with more caution - im still waiting for a correction to happen cause everything feels overpriced
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@2use, I'm putting together my 2017 forecast and am enjoying reading through my comments and forecasts from prior months and years. I want to put together the best forecast that I can and I appreciate your input through the year. Thanks and Happy New Year. - Jan 7, 2017
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