If 2018 Had 55 Weeks.

If 2018 had 55 weeks instead of the normal 52 that we all learned in school then 2018 would have been a basically flat year, at least through last Friday.  Those circled areas on the above chart tell the story.  We opened last year on the S&P 500's ETF, SPY, at 266.86 and went out on Friday 266.46.  Add in last year's dividends and we're actually in the green on a total return basis.  Of course that's not the way it works but it does show you how violent December's decline was and how rapidly we've rebounded from those levels.  

My early guess is that we're range bound for some time now.  Unfortunately nobody knows what the range will be or if that analysis is correct.  Absent a further decline in economic fortunes, probability would suggest the more likely scenario is we trade for some time between 260-285 on SPY.   Probability would also suggest we end the year higher than where we left off after 2017's thrashing.  It would also suggest that if there is going to be a sustained move higher it might come later in 2019.  Of course anything could happen.  This is just a modeling analysis on probabilities of what has the potential to occur going forward.

More grim economic forecasts could bring that range to a lower level over the course of this year.  A good guess, and remember this is a guess, would then be roughly 235-270 on the same index.  The 235 level being approximately where we found support in December and 270 is a band of resistance on the chart.  By-the-way you can double-click on the chart to make it larger.  Also the chart is from Tradingview.com, although the annotations are mine.

Finally those that follow these things for a living would argue that we at some point need to retest December's lows.  Just note there have been many instances of a V-bottom {the name for the chart pattern we saw in December-a rapid decline followed by a similar move straight back higher} where the lows were never revisited.   I think we're at least going to see at some point a bout of profit taking.  It's been too big of a move off the bottom for some of those that were buyers a few weeks ago not to think about taking something off the table.  A full retest of the bottom is about a 50-50 proposition in my book.  Even if we don't go all the way back down there probability suggests we could see a decline in the 245-250 level on the SPY.  That would be a pretty normal retracement of this most current move.   Of course I'm not saying any of this will happen.  I'm just trying to project out levels that investors can be review if some of these things were to occur.

Regardless of the next move, many would now argue that the easy money off of that bottom has likely been made.  Basically anybody who bought stocks all of last year is right now losing money and the theory has always been that these disgruntled buyers could become sellers the closer they are to being made whole.  We call that resistance and there's a year's worth of it higher that we're going to have to churn through now.  Of course we'll have to see how the trading takes us.  Earnings should start giving us a clue towards the future.  Also we're overbought now on a short-term basis by our work.

Back Thursday.

*Long ETFs related to the S&P 500 in client and personal accounts.  Positions can change at anytime without notice.