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The charts, graphs and comments in my Trading Blog represent my technical analysis and observations of a variety of world markets...
* Major World Market Indices * Futures Markets * U.S. Sectors and ETFs * Commodities * U.S. Bonds * Forex

* The content in my articles is time-sensitive. Each one shows the date and time (New York ET) that I publish them. By the time you read them, market conditions may be quite different than that which is described in my posts, and upon which my analyses are based at that time.
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DISCLAIMER: All the information contained within my posts are my opinions only and none of it may be construed as financial or trading advice...please read my full Disclaimer at this link.


* If the dots don't connect, gather more dots until they do...or, just follow the $$$...





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Saturday, December 02, 2017

Market Forecast for 2018: More Volatility & Political Uncertainty

In last year's market outlook for 2017, I anticipated a rise of around 11% in U.S. equities, in general, to place the S&P 500 Index at just above the 2400 level by the end of the year (my post was written on December 1, 2016, so my calculations and forecast hadn't incorporated a further 80-point rally that occurred during that month until year-end).

In my post of November 26, 2016, I was projecting a rally in the SPX to around 2700 by the next U.S. Presidential election in 2020. Markets have certainly been much more robust this year than I anticipated, as this level has almost been hit already. It rallied to an all-time high of 2657.74 on November 30 and closed on December 1 at 2642.22.

At the time of writing this post on December 2, you will see that, of the 9 Major Indices, the S&P 500 Index has gained 18.02% year-to-date, as shown on the first graph below, while the Nasdaq 100 and Nasdaq Composite Indices have gained the most, and the Russell 2000 and Dow Transport Indices the least.

With regard to the 9 Major Sectors, Technology has gained the most year-to-date at 32.84%, with six others at around 20%. Consumer Staples gained 10.77%, while Energy has far underperformed at -5.06%.

All of these Indices and Sectors are currently trading, either above, or well above, their 50-day moving averages, as shown on the following 1-year daily charts.

Without repeating myself with respect to three articles that I posted recently, I'd just direct your attention to the conclusions that I made here regarding the Tech Sector (XLK), Consumer Cyclicals (XLY) and Consumer Staples (XLP) in connection with strengthening/weakening consumer spending into year-end and next year, as well as effects from potential upcoming Fed interest rate hike(s).

Additionally, I'd re-iterate the comments I made here regarding world money flow in the U.S. Financials, versus European and Chinese Financials and their respective major resistance levels.

Finally, please note the comments I made here regarding the (actual past and potential future) effects of political legal machinations and political legislative drama on the SPX and VIX, and their price/technical levels to monitor in the week(s) ahead.


I understand that tax cuts contained in the Senate tax bill (that was just passed on December 2) don't begin until 2019. If this time frame is agreed to by the House and ratified by the entire Congress by the end of this year, we may see markets take some hefty profits in early 2018, in protest, as, no doubt, they were expecting them to take effect in 2018, judging by this year's hot market.

If this scenario were to happen and, taking into consideration the uncertainty that next year's mid-term elections will bring, coupled with likely interest rate hikes, I'd project that we'll likely see volatility rise in 2018 and the SPX (and the other 8 Major Indices) gain only about half of what they gained this year. This would mean an approximate increase of 10% for the SPX. I expect Technology to remain fairly strong, and Small-Caps may struggle more than Big-Caps. Nonetheless, I anticipate that the U.S. markets will continue to outperform other World markets (keep an eye on the performance of their Financials, as I noted).

With respect to the S&P 500, Nasdaq 100, and Russell 2000 Indices, I'd watch to see whether the following major support levels can be held on the following Index/Volatility ratios (note their corresponding Monthly ratio charts below)...a breach of those important levels could produce the sell-off that I mentioned above:
  • SPX:VIX Ratio -- 200
  • NDX:VXN Ratio -- 350
  • RUT:RVX Ratio -- 80

Good luck next year! 

P.S. You can read other 2018 Market Outlook articles (written by fellow contributing writers to Investing.com), as well as mine above, here (Part I) and Part II here.

N.B. See my 2017 Market Wrap-Up post for a final look at how and where the year ended, as well as, further details on what to watch for and where the market may be headed in 2018.

* UPDATE December 23...

  • The S&P 500 Index came within 5 points of hitting 2,700 and the Nasdaq Composite Index hit 7,000 on December 18
  • President Trump signed the Tax Cuts and Jobs Act on December 22 (the new lower corporate rate of 21% will take effect January 2018)...following this, many major companies announced pay raises and bonuses for employees, as well as plans to hire more workers and increase infrastructure spending