Let’s talk about timelines and realistic price targets for SPY.
Per ush, wordy post. I know you expect nothing less from me. But I just want to ensure that I am explaining my methods and how I determine these things so you can follow along and understand more in-depth and less superficially. But if you really just don’t care, that’s okay, just skip to the results below.
Historically:
SPY has seen 3 major sell offs: Dotcom bubble burst in 2000 with a sell off of around 50%, financial crisis with a sell off of about 50% and COVID crash with a sell off of 34.87%.
Looking at SPX, it adds another 1 sell off that made it to the 50% mark and that was in 73-74 during the inflation crisis.
Interestingly, SPX tends to have these random 25 to 35% sell offs every couple of ears spanning from 1957 till about 2000 (the start of the dot com bust; see chart below).
What is interesting about this, is that it further confirms my theory of normal “pull backs” and normalization of growth. Absent external circumstances, a stock will naturally sell off and revert back to a normal growth range. It just so happens that between 2000 till today, us millennials, gen Xs and boomers have just been living through one nightmare after another and the stock market has not had the opportunity to just normally correct naturally, and its always been reactive to these external stressors.
Time Series Modelling
Generally, I plan my swings trades through a combination of chart patterns, fundamentals and time series modelling. Most of my emphasis is on time series modelling. Essentially what this is, is statistics software plotting out a curve and linear line that encompasses the slope of a stock’s growth over time, and then provides an equation that essentially encompasses the velocity and extent of the growth over time.
Doing this for stocks helps us gain a better understanding of where a stock price will fall at any given time, both historically and in the future and allows us to determine stock trajectory and velocity. While it isn’t perfect at correcting for external factors (such as war and inflation), previous events where these similar things have occurred are actually factored into the range that is produced by the slope. Thus, the method does allow for some external influence to affect the trajectory and corrects for that by broadening the expected trading range over time to an appropriate amount.
Results of Time Series Modelling
I have created two time series models, 1 for the past year of data and 1 since SPY has been publicly traded (the full model). The reason I have done this is because the 1 year of data gives us a better view of the rate of decline of the stock. However, the full model gives us a better idea of how low the stock could, realistically go, in ideal circumstances.
Results of Full Model
- We are currently at trading day 7376.
- Based on current day, the range predicted by the full model is 404 – 380.
- Day 7400 (approx. 6 weeks) places the price range between 400 – 336
- Day 7500 (approx. 24.8 weeks or 6.2 months) places the range between 416 – 346
- Day 8000 (roughly 2 years) puts the trading range at 398 – 468.
These are big ranges, yes. The reason is because SPY has had so much variance over the years (from the 2008 financial crisis to the dotcom bust), the model incorporates these huge deviations into its analysis.
But essentially the summary is, based on the full model, SPY could potentially begin returning to previous highs in 2.6 years assuming SPY remains on its current trajectory.
Results of Modified Version
- We are currently at day 256
- Day 300 (or 6 ish weeks) places the range at 346 – 366 (very similar to the full model)
- Day 350 (50 ish weeks or roughly a year) places the range at 285 – 305
This model is a negative model, meaning that it assumes, based on current trajectory, SPY will eventually go to 0. This is because, in the past year worth of data, SPY has been in a perpetual decline. Thus, I obviously don’t believe this to be true; however, I simply do this to measure the velocity of the decline to get a sense of how fast SPY is declining over time and make assessments.
We see that both models somewhat agree with a range at approximately 6 weeks out, with an average price of roughly 362.
How low will it go?
- The full model pegs the lowest price in the 330s. Could this be the bottom? Maybe. Obviously no one knows.
- Is it possible this drops below 300? Yes. But this would involve SPY dropping below its linear line which has traditionally be uncharacteristic for regressions with SPX. However, a drop below 300 would bring SPY down 50% and we have indeed seen 50% sell offs before. So, it is absolutely possible. Is it like? Not sure. I know its not going to happen with SPX, but it could very well happen with SPY.
- What do I think? I think our times are not necessarily unprecedented and I don’t really see a reason for the stock to decline 50%. 50% would be surpassing all COVID returns. This has already happened for many stocks (i.e. PYPAL and NFLX, FB, etc), so you know what? Its possible. It really is. But the point of Indices and ETFs is to remain stable and avoid such things from happening. There is great interest in ensuring that indices like SPX and SPY ETFs aren’t falling 50% every couple of years because, well, what is the point of them if they are more volatile than growth stocks? But this isn't enough to actually keep the stock from falling 50% unfortunately.
The Stock Market wasn’t Born Yesterday
- I see a lot of “unprecedented” times talks. But I have to say, the stock market wasn’t born yesterday. It is unprecedented for us, but it isn’t for the stock market.
- It knows about recessions, it knows about terrorism, it knows about war, it knows about inflation, it is far more wiser than all of us. Thus, as we struggle to grapple with these stressful times, the stock market will do what it normally does during these times. What is that? Look at the chart and you will see. The market is an open book and doesn’t aim to be clandestine with its emotions like a passive aggressive ex.
- One notable difference is that SPY has not been falling at the same velocity as it did in 2008. This is apparent when we plot out the growth curve in 2007/2008 and the growth curve for this past year (see below).
Take-away
- We will likely see some interesting results at around 6 weeks out. SPY will probably be completely immersed in the 300s at that point.
- If this is the case, SPY will be progressing according to its quadratic growth curve and we can make further assumptions at that time about its trajectory.
- Based on its current trajectory and velocity, we likely are not going to be able to come close to reclaiming previous highs for just over 2 years. And that is 2 years from this point. And that is the ideal situation assuming SPY maintains current trajectory and velocity.
- SPY has not been selling off as fast as it has in the 2007 – 2008 crisis. The selling is much more controlled nd has actually been following this quadratic line. This tells me that this is not really a panic selling situation and its not an uncontrolled, spiraling sell like we saw in 2007 / 2008. This is a calculated and methodical sell.
Thanks for reading!
Leave your comments/questions and criticisms below.
Trade safe!
Per ush, wordy post. I know you expect nothing less from me. But I just want to ensure that I am explaining my methods and how I determine these things so you can follow along and understand more in-depth and less superficially. But if you really just don’t care, that’s okay, just skip to the results below.
Historically:
SPY has seen 3 major sell offs: Dotcom bubble burst in 2000 with a sell off of around 50%, financial crisis with a sell off of about 50% and COVID crash with a sell off of 34.87%.
Looking at SPX, it adds another 1 sell off that made it to the 50% mark and that was in 73-74 during the inflation crisis.
Interestingly, SPX tends to have these random 25 to 35% sell offs every couple of ears spanning from 1957 till about 2000 (the start of the dot com bust; see chart below).
What is interesting about this, is that it further confirms my theory of normal “pull backs” and normalization of growth. Absent external circumstances, a stock will naturally sell off and revert back to a normal growth range. It just so happens that between 2000 till today, us millennials, gen Xs and boomers have just been living through one nightmare after another and the stock market has not had the opportunity to just normally correct naturally, and its always been reactive to these external stressors.
Time Series Modelling
Generally, I plan my swings trades through a combination of chart patterns, fundamentals and time series modelling. Most of my emphasis is on time series modelling. Essentially what this is, is statistics software plotting out a curve and linear line that encompasses the slope of a stock’s growth over time, and then provides an equation that essentially encompasses the velocity and extent of the growth over time.
Doing this for stocks helps us gain a better understanding of where a stock price will fall at any given time, both historically and in the future and allows us to determine stock trajectory and velocity. While it isn’t perfect at correcting for external factors (such as war and inflation), previous events where these similar things have occurred are actually factored into the range that is produced by the slope. Thus, the method does allow for some external influence to affect the trajectory and corrects for that by broadening the expected trading range over time to an appropriate amount.
Results of Time Series Modelling
I have created two time series models, 1 for the past year of data and 1 since SPY has been publicly traded (the full model). The reason I have done this is because the 1 year of data gives us a better view of the rate of decline of the stock. However, the full model gives us a better idea of how low the stock could, realistically go, in ideal circumstances.
Results of Full Model
- We are currently at trading day 7376.
- Based on current day, the range predicted by the full model is 404 – 380.
- Day 7400 (approx. 6 weeks) places the price range between 400 – 336
- Day 7500 (approx. 24.8 weeks or 6.2 months) places the range between 416 – 346
- Day 8000 (roughly 2 years) puts the trading range at 398 – 468.
These are big ranges, yes. The reason is because SPY has had so much variance over the years (from the 2008 financial crisis to the dotcom bust), the model incorporates these huge deviations into its analysis.
But essentially the summary is, based on the full model, SPY could potentially begin returning to previous highs in 2.6 years assuming SPY remains on its current trajectory.
Results of Modified Version
- We are currently at day 256
- Day 300 (or 6 ish weeks) places the range at 346 – 366 (very similar to the full model)
- Day 350 (50 ish weeks or roughly a year) places the range at 285 – 305
This model is a negative model, meaning that it assumes, based on current trajectory, SPY will eventually go to 0. This is because, in the past year worth of data, SPY has been in a perpetual decline. Thus, I obviously don’t believe this to be true; however, I simply do this to measure the velocity of the decline to get a sense of how fast SPY is declining over time and make assessments.
We see that both models somewhat agree with a range at approximately 6 weeks out, with an average price of roughly 362.
How low will it go?
- The full model pegs the lowest price in the 330s. Could this be the bottom? Maybe. Obviously no one knows.
- Is it possible this drops below 300? Yes. But this would involve SPY dropping below its linear line which has traditionally be uncharacteristic for regressions with SPX. However, a drop below 300 would bring SPY down 50% and we have indeed seen 50% sell offs before. So, it is absolutely possible. Is it like? Not sure. I know its not going to happen with SPX, but it could very well happen with SPY.
- What do I think? I think our times are not necessarily unprecedented and I don’t really see a reason for the stock to decline 50%. 50% would be surpassing all COVID returns. This has already happened for many stocks (i.e. PYPAL and NFLX, FB, etc), so you know what? Its possible. It really is. But the point of Indices and ETFs is to remain stable and avoid such things from happening. There is great interest in ensuring that indices like SPX and SPY ETFs aren’t falling 50% every couple of years because, well, what is the point of them if they are more volatile than growth stocks? But this isn't enough to actually keep the stock from falling 50% unfortunately.
The Stock Market wasn’t Born Yesterday
- I see a lot of “unprecedented” times talks. But I have to say, the stock market wasn’t born yesterday. It is unprecedented for us, but it isn’t for the stock market.
- It knows about recessions, it knows about terrorism, it knows about war, it knows about inflation, it is far more wiser than all of us. Thus, as we struggle to grapple with these stressful times, the stock market will do what it normally does during these times. What is that? Look at the chart and you will see. The market is an open book and doesn’t aim to be clandestine with its emotions like a passive aggressive ex.
- One notable difference is that SPY has not been falling at the same velocity as it did in 2008. This is apparent when we plot out the growth curve in 2007/2008 and the growth curve for this past year (see below).
Take-away
- We will likely see some interesting results at around 6 weeks out. SPY will probably be completely immersed in the 300s at that point.
- If this is the case, SPY will be progressing according to its quadratic growth curve and we can make further assumptions at that time about its trajectory.
- Based on its current trajectory and velocity, we likely are not going to be able to come close to reclaiming previous highs for just over 2 years. And that is 2 years from this point. And that is the ideal situation assuming SPY maintains current trajectory and velocity.
- SPY has not been selling off as fast as it has in the 2007 – 2008 crisis. The selling is much more controlled nd has actually been following this quadratic line. This tells me that this is not really a panic selling situation and its not an uncontrolled, spiraling sell like we saw in 2007 / 2008. This is a calculated and methodical sell.
Thanks for reading!
Leave your comments/questions and criticisms below.
Trade safe!
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