The Road Forward {Part I }

Today I wanted to illustrate what I think is the highest probable outcome for the S&P 500 for the rest of the year.  As always I'll be using the S&P 500's ETF, SPY.  Also the chart above is from Tradingview.com although the annotations to it are mine.  The analysis is based on many factors, including but not limited to sentiment and valuation, thus it could obviously be wrong.  Here's what I think probability is suggesting.

The yellow rectangular area is what I'll describe as the probable range for the index to trade within  the next  two months.  Let's call that 270-271 on the ETF.  Based on today's trading that's about 2 percentage points down if the worst kicks in.  On the upside probability suggests potential up to 288.  The green rectangle is where I think the highest probable outcome towards the end of the year.  That range is 280-286.  Assuming this is the true range then we're looking at possible upside of 2-4%.  If we take a mid-point of 286 which is roughly the high's reached back in early January then the index would end the year up about 7%.  Ending on the lower range would mean stocks would trade basically flat in 2018.    A close in the mid-part of this range would mean that the market would likely gain 5-7% on a a total return basis for the year.  That's a fairly typical year for the markets although it would likely be somewhat of a disappointment to investors given how we started in January.  Also a market that now looks to be consolidating it's gains needs to be viewed in context with the gigantic move we've seen in stocks since the elections in 2016.

Again remember that while I think this is the highest probable outcome the market gets the final verdict so I could be wrong.  Investors need to consider the possibility of a move higher that retests the September highs, while also considering the potential for retesting both the February, April and October lows if sentiment continues to erode.

Oh, and one comment on markets today.  We are weaker and down about 1%.  Many market participants are closed today for Veteran's Day and we were short term overbought.  Later this week we'll begin to discuss what the markets may be trying to say for 2019.

*Long ETFS related to the S&P 500 in client and personal accounts.  Positions may change at any time without notice or publication on this blog or on any other form of media.