The other day, a friend (even if I don´t know his name), asked me where I thought the S&P 500 would close for the year. I said I did not have a crystal ball or something like that, for the simple reason that I just don’t think that long in advance. I use technical analysis as a way of navigating the volatility more in the short and medium term. So, I typically have a view from a week to a few weeks into the future.
But the question was not only interesting, but at the same time, I realized that many times I do project how high an index or a stock will go up, even if I don’t know the time scale in which this will happen.
As you know, if you are here, I use the Trix as my main basic technical analysis tool. Why? because I have found it to be very good and reliable. Show me something better and I will switch.
Typically, I use the weekly Trix, because it seems to give good signals and because it has a time scale of weeks, which I find convenient to navigate. In my experience, the Daily Trix is not as consistent and the Monthly Trix, you could fall sleep waiting for a good signal to take place.
Let’s look then at the weekly Trix for the S&P 500 and I will tell you how I use it.
This is the weekly trix (the red waivy line). I use the turning points up as buying signals. Thus, all of the vertical lines I drew in blue in this chart since 2013 would be buying points. As you can see, you would have made money in all of them, if you sold when the the trix turned down. Currently, I am fairly positive, because as you can see, there has been a buy signal for four weeks and there seems to be no stop to it. Note that the Trix did quite well in predicting the recovery in October and in February. And indeed on Oct. 8th. I told you to buy en force. And in February 20th. I repeated the buy signal and apologized for making an earlier call a bit ahead of time.
Note that how deep the trix goes seems to give better and longer lasting signals too. So, the lower the red line is, the more powerful the move up will be.
Both times the calls worked quite well. But could I have predicted how high they would go. Well, I didn’t but I must say I told the same friend in October we would see the end of the year near the highs and mentally thought the same after the February bounce.
But what can I say now?
Well, the Trix weekly is turning up, but from a high level, so that all I can say is that we will be moving up for a few weeks. From experience I would say about six weeks and 200 points, the slope of the Trix is not extremely sharp.
But, can I say something longer term?
Yes, but using the Monthly Trix, rather than the weekly Trix:
This is a 17 year Monthly Trix. As you can seethe signals are quite good too, except for some that did not last long after the Internet bubble in 2001.But even in those, you did not make much money, but the Trix told you to sell in time, by turning down.
What is interesting now, is that the Monthly Trix is also giving a buy signal, much like the weekly Trix. But it is more powerful than the weekly one, because it is deeper. Ad given that it is a monthly indicator, the signal is much longer lasting. Thus, all I expect in six or seven weeks, is for the market to take a rest before resuming its rise. From the slope and the depth of the signal, I would say it will be like 15-20% from the signal or about 2,400 by the end of the year. This should have been the answer to my friend!
Not many people are that bullish!
However, thinking about these issues led me to an index that is even more bullish than the S&P and which is really the reason for this post (besides answering my friend’s question). The index is the Biotech Index the IBB; shown below for its monthly version:
As you can see, the Monthly Trix has given five very powerful signals since 2008, all of which were very good. Well, right now, or four weeks ago, the Monthly Trix started turning at a level not seen since 2002 for this index, indicating that a very powerful bull run may be in the works. (note that the IBB Trix has never been as low as that for the S&P 500, its correction in 2008 was almost mild, comparatively speaking
How powerful? Well, two signals at these levels since 2002 have given a 30% rise and an 80% rise.
And the plot says we are barely starting…
As usual, I will write a post if something changes. The Trix is not infallible and news can always turn it the other way, but monthly signals like these have turned out to be quite robust.