2016 Market Wrap-Up: S&P 500 Index, SPX:VIX Ratio & USD

This post will outline how the S&P 500 Index and the SPX:VIX Ratio performed throughout 2016 and how they ended the year. It will also take a look at where the US Dollar Futures Index finished up.

S&P 500 Index

The following four charts of the S&P 500 Index will depict how 2016 ended, on a yearly, quarterly, monthly, and weekly basis.

Each candle on Chart #1 represents a period of one year.

After breaking out to all-time highs and above major resistance, the 2016 candle closed near its high, after re-testing last year's low and the close and open of the 2013 and 2014 candles, respectively. It would appear that, after shaking out short-sellers, the bulls are firmly in control of upward momentum. We'll see if the Momentum indicator makes a new high on the 2017 candle...a distinct possibility, if price can remain above major support at 2100. If price drops to that level, we'll see a rise in volatility, and, if price drops and holds below that level, volatility will rise drastically.

Chart #1 SPX Yearly

Each candle on Chart #2 represents a period of one quarter.

The Q4 candle closed in its upper 1/4, after re-testing the lows of Q3, as well as, what was major resistance, now major support. I'd like to see the Momentum indicator begin to reverse its current downward drift, if price moves higher...otherwise, we could see weakness and an increase in volatility in the first quarter of 2017.

Chart #2 SPX Quarterly

Each candle on Chart #3 represents a period of one month.

The December candle closed in its upper 1/3, after re-testing November's close and highs. The Momentum indicator broke its downtrend (which began in 2014), but has failed to make a new swing high. This signals that we'll likely see an increase in volatility in the medium term, until a new swing high is made on MOM.

Chart #3 SPX Monthly

Each candle on Chart #4 represents a period of one week.

The last week closed on a bearish engulfing candle, after re-testing the top Bollinger Band and prior all-time highs, once again. The Momentum indicator has broken slightly above its 2016 downtrend, but has yet to make a new swing high. This signals that we'll likely see an increase in volatility in the short term and lower prices down to and on either side of 2200, until serious buying resumes and a new swing high is made on MOM.

Chart #4 SPX Weekly

SPX:VIX Ratio

The following four charts of the SPX:VIX Ratio will depict how 2016 ended, on a yearly, quarterly, monthly, and weekly basis.

Each candle on Chart #5 represents a period of one year.

Price on this ratio closed near its all-time high and above major resistance at 150 on a massive bullish engulfing candle, after a hefty retreat down into the "Fragile Zone" this year. Volatility was enormous in 2016 and the Momentum indicator drifted slightly upwards, but has yet to make a new swing high. We'll see if the Momentum indicator makes a new high on the 2017 candle...a distinct possibility, if price can remain above major support at 150. If price drops to that level, we'll see a rise in volatility, and, if price drops and holds below 140, volatility will rise drastically.

Chart #5 SPX:VIX Yearly

Each candle on Chart #6 represents a period of one quarter.

The Q4 candle closed in its top 1/3 on a massive high wave candle. Although price was plagued by uncertainty, it finished relatively strong on this timeframe. Although the Momentum indicator drifted higher in 2016 from its lows in mid-2015, it has yet to make a higher swing high and dipped by the end of the year.

Chart #6 SPX:VIX Quarterly

Each candle on Chart #7 represents a period of one month.

The December candle closed near its low after briefly breaking out to new highs and is high-basing in the upper 1/3 of this year's candles. While the Momentum indicator broke out to a new swing high several months ago, it has yet to confirm December's brief (and failed) breakout.

Chart #7 SPX:VIX Monthly

Each candle on Chart #8 represents a period of one week.

The last week closed near the bottom of its large bearish candle, after briefly breaking out (and back into a long-term uptrending channel from the 2011 lows) the week before. Bollinger bands are tightening and the Momentum indicator has been making a series of lower highs this year on this timeframe...suggesting that serious longer-term, committed new buying has yet to make its way into the S&P 500 Index. Until it does, I think we'll see a rise in volatility, particularly if this ratio drops and holds below 150, and, especially, 140. Bulls will need to come out in full force to see it rally back into the rising channel above the 200 level...and be confirmed by a new MOM swing high on this short-term timeframe.

Chart #8 SPX:VIX Weekly

US Dollar Futures Index

Each candle on Chart #9 represents a period of one month.

The December candle closed in its upper 1/3 on a high wave candle...although, it's, technically, a bullish candle and closed higher than the prior month, it still represents indecision on this timeframe, after breaking out to new highs this year. It's caught in between a 161.8% external Fibonacci retracement level at 100.54 (major support) and a 161.8% Fibonacci extension level at 103.47 (minor resistance). The next Fibonacci resistance level is 107.08 (a 200.0% external Fibonacci retracement level). Bollinger bands are still widening on this timeframe, and, if price can hold above 100.00, then it could very well rally to 107.00. However, it may be influenced by what happens in the S&P 500 Index and the SPX:VIX ratio, so it's worth monitoring how those behave in the short and longer terms, as outlined above.

Chart #9 US Dollar Monthly

CONCLUSIONS

2016 was a year of major volatility. In my Market Forecast for 2016, I had anticipated an increase of around 5-6% in equities, in general, as well as a rise in volatility. In fact, the S&P 500 Index had increased by 11.14% by mid-December, but closed at 9.54% by the end of the year.

2017 will, no doubt, hold a lot of uncertainty in relation to what happens with a new U.S. political administration and future economic and fiscal policies that may be enacted, what domestic and foreign events and policies develop, and what the Fed decides regarding interest rates. However, if we see general cooperation being maintained among government officials, we could see much less volatility next year (especially since the 2016 U.S. Presidential election is behind us)...and it may be a slower, steadier climb to higher prices in equity markets than we saw in 2016, along with a rising U.S. dollar. The timeframes on the above-referenced instruments are one of many methods that can be used to evaluate the effects from such future influences.

A LOOK INTO THE FUTURE

In closing, I'd mention that my Market Forecast for 2017 can be found at this link...and that my longer-term SPX Outlook to 2020 U.S. Presidential Election can be found at this link.

Of course, I realize that a forecast is, simply, one possibility. However, it can be a useful tool for any serious trader/investor to implement in order to track, assess and learn from one's future successes and failures on a short, medium and long-term basis. And, it can be modified/updated during its duration, depending on world and domestic influences at the time.

I wish you good fortune with all your endeavours in 2017!

Happy New Year 2017!

Market Forecast for 2017: SPX at 2400 by End of Year

On November 26th, I posted an article which outlined a hypothetical scenario of the S&P 500 Index reaching 2700 by the next U.S. Presidential election in November 2020.

I realize that this is only one of many possibilities that lie ahead for the SPX. However, given the aggressive economic, tax and fiscal agenda that President-elect Trump is currently promoting, it could, very well, materialize without too much resistance.




In keeping with the trajectory and velocity associated with that premise, I anticipate that the SPX could reach 2400 by the end of 2017, as shown on the Monthly chart below.

Monthly SPX

In last year's market outlook for 2016, I anticipated a rise of around 5-6% in equities, in general, in a run-up to this past November's Presidential election.

As of today's date of December 1st, you will see that the S&P 500 Index has gained 7.2% Year-to-date, as shown on the first graph below, while the Dow & Nasdaq Transport Indices and Russell 2000 Index have gained the most. The Nasdaq 100 Index has been the weakest.

The second graph shows the steep rise of the Dow & Nasdaq Transport Indices and Russell 2000 Index from the day after the election.

The third Year-to-date graph shows the percentages gained/lost for the 9 Major Sectors. 

Energy, Industrials, Financials and Materials have gained the most, while Consumer Staples has gained the least, and Healthcare has lost 4.16%, so far, this year. 

The last graph shows the steep rise of the Energy, Industrials, Financials and Materials sectors, and the decline of the Healthcare and  Consumer Staples sectors, since the election.

CONCLUSIONS

Assuming that volatility will be kept low (which can be monitored in a manner as described in my post of November 26th), I'd project that equity markets, in general, will gain around 11% in 2017. That would place the S&P 500 Index at just above the 2400 level by the end of the year.

In that regard, I think it will be important that Financials, Large-Caps and Small-Caps stay strong and that market participants continue to favour the riskier sectors over their more defensive counterparts. As well, I'd like to see Technology firm up and gain strength to support such a bullish outlook.

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P.S.
By the way, for those who have pooh-poohed the validity or value of my forecasts, I would, respectfully, mention that forecasting is a useful tool for any serious trader/investor to implement in order to track, assess and learn from one's future successes and failures on a short, medium, and long-term basis.

And, they can read my prior years' forecasts at this link and determine their merit for themselves.

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P.S. -- SHOUT OUT TO INVESTING.COM...

As a contributing writer to Investing.com, I'd like to thank them for inviting me, once again, to participate and share my views and for publishing my article at this link on their site on December 28th, along with some of their esteemed contributors. It's a privilege to have contributed to their annual forecasting special during the past few years.



* UPDATE February 21, 2017: Since the beginning of this year, the SPX has already gained 5.65%, as shown on the following Percentages gained/lost graph of the U.S. Major Indices...a little over half-way to its projected 2017 percentage increase.

U.S. Major Indices -- Year-to-Date percentages gained

China's Shanghai Index: Its Role in World Markets in 2016

I last wrote about China's Shanghai Index (as part of a comprehensive review of major world markets) on January 29th. Since then, and, until June, the road to recovery from its lows of the year has been volatile and rocky. The last half of this year has seen a fairly steady, if choppy, advance to its current level just below its next resistance level of 3250, as shown on the following Daily chart.

In that post, I had mentioned that a rally to (and hold above) 3000 could thwart a major downdraft, as was being threatened by an imminent break of a neckline of a massive Head & Shoulders formation.

A break and hold above 3250 could see price continue to rally to its next resistance level around 3400-3500. This index is trading under the bullish influences of a moving average Golden Cross, so a break and hold above 3250 is critical to continued success of further advance; otherwise, a drop and hold below that level could very well see a major bear attack ensue, sending price to new lows of around 2500, or more.

In my above-mentioned post, I also made the following conclusion (relative to world markets):
     "In particular, watch Japan, China, Brazil, the Russell 2000 and the Nasdaq 100 Indices for committed leadership..." related to any real success or failure of the S&P 500 Index and equities, in general.

As noted on the following 1-year Daily charts of these indices, they've all risen above major consolidation/congestion levels this year, with the exception of the Nasdaq 100...the one to watch, along with the Shanghai Index, to see whether their movements (either strength or weakness) influence, or have an impact on, the other indices in the days and weeks ahead.

U.S., European & Chinese Financial Weakness

In my 2016 Market Forecast post of December 29, 2015, I mentioned three ratio charts worth monitoring for 2016.

They show the strength/weakness of the:

• XLF (U.S. Financials ETF) compared to $SPX
• EUFN (European Financials ETF) compared to $STOX50
• GXC (Chinese Financials ETF) compared to $SSEC

The following three updated Daily ratio charts show that U.S. and European financials are weak (and weakening) compared with their respective Major Index, so far, this year, while China's financials are also weak and mired in a long-term trading range, just above major support.

Even if U.S. equity markets do break out of their long-term high-basing trading range (as described in my last post), none of these three ratio charts fill me with much encouragement to project that such a rally could last very long if we see continued weakness, and, especially, a deterioration in these Financial ETFs compared with their Index.

Financials ETF Looks Weak

In my post of December 29, 2015, I stressed the importance of the Financials ETF (XLF) in, potentially, propelling the SPX to an increase of 5-6% for 2016.

You can see from the Daily ratio chart below of XLF:SPX, that price weakened considerably afterwards and fell to new lows not seen since 2012. Price is attempting to stabilize above that low, but all three indicators are still in downtrend and display new "SELL" signals, and price action is still under the bearish influence of the Death Cross formation of the moving averages.

If price drops and holds below near-term support of 0.0105, we could see a significant drop in the SPX, likely to new lows for the year, as I mentioned on April 3.

It's Now or Never For Bulls

Was today's (Friday's) world-market rally serious and sustainable, or simply a knee-jerk reaction to Japan's surprise NIRP (negative interest rate policy) announcement last night (including some shorter-term short-covering action) and "end-of-month window dressing" by fund managers?

Perhaps the following update to my last post will provide some further insight into that question, as I review a variety of markets.

Market Forecast for 2016: Debt Bubbles and Volatility

As a contributing writer at Investing.com, I'm pleased to announce that they invited me, once again, to participate and share my views on where the markets may be headed for 2016. FYI, you can read what I wrote a year ago, as to what I projected for 2015, here.

I wrote the following article on December 7th: Market Forecast for 2016 -- Debt Bubbles and Volatility. It was published on their website on December 29th and may now be read at this link.

I'd also like to take this opportunity to thank the good folks at Investing.com for this invitation and for publishing my articles for past few years...it's been a privilege!

Good luck to all next year!

* For your easy reference, I've re-printed my article (originally written on December 7th), as follows...

What would cause retail and proprietary trading banks to tighten lending and begin to call in their loans?...possibly a major "accidental international incident" in the (internationally-crowded) Middle East, involving Russia and the West/Europe and/or Middle-Eastern countries? In such a scenario, we may see the price of Oil and Gold spike, contrasting with a major world-wide sell-off in bank stocks, in particular, along with equity stocks, in general. The markets in the U.S. could be especially hit hard, inasmuch as 68.4% of its GDP was comprised of personal consumption expenditures in Q3 of 2015 (it has averaged around 68% since 2008). The question becomes, would banks pass a stress test under those circumstances?

Until then, I think we'll see world Central Bankers continue to inflate equity markets and influence currencies by keeping interest rates low (or relatively low), thereby keeping Oil and Gold prices depressed -- which, then, keeps inflation low -- which, in their minds, could serve to validate their reasons for maintaining low interest rates and/or some form(s) of Quantitative Easing -- perpetuating this never-ending cycle of low economic growth, in which we seem to be stuck and, which, world governments seem to be incapable of, or unwilling to, address.

The question, then, becomes how much could markets advance next year, if a major international incident did not occur? Possibly around 5-6% -- a bit higher than this year's increase, which peaked (as of today's writing of this article...December 7th) at its (daily closing) high of 3.49% on May 21st -- in a potential run-up to the U.S. presidential election to be held on November 8th.

In that case, I'd keep an eye on the Technology Sector and Cyclicals to continue to outperform other sectors in the U.S. and to see if the Financials Sector begins to, substantially, firm up, along with the Industrials Sector. Otherwise, we may only see a repeat of 2015 and achieve around a 4% increase, or less, for 2016. Here's how they've performed, so far this year, as shown on the following Year-to-Date graph of the 9 Major Sectors...

Regarding the Financials Sector, the following three Daily ratio charts are worth noting...they show the strength/weakness of the:

• XLF (U.S. Financials ETF) compared to $SPX
• EUFN (European Financials ETF) compared to $STOX50
• GXC (Chinese Financials ETF) compared to $SSEC

Each chart shows that price is trading at or near major price resistance and their converging 50 and 200 MAs, and that all of these financial sectors are currently weaker than their country's counterpart Major Index...the last two at a considerable discount. Unless we see all three of these firm up and outpace their major indices, I doubt we'll see that 5-6% potential target increase achieved in U.S. equities.

In any event, as mentioned in my post of December 3rd, I'll re-iterate that, "I think 2016 will see greater volatility and much larger swings than we've seen this year." My comments and chart contained therein still apply (and are worth monitoring, along with the above charts and graph, over the coming weeks and months) regarding major resistance and support levels on the SPX:VIX ratio and equity market follow-through.

Markets Bottoming or Simply Short Covering?

Markets that have rallied the most (within their respective groups) on a percentage basis this past week (showing percentage-gained above the zero level, as opposed to most of them being in the percentage-lost category, on a Year-to-Date basis):

Dow Utilities
Portugal
Greece
EEM (Emerging Markets ETF)
China's Shanghai Index
Canada's TSX Index
Austrailia's AORD Index
Platinum
Oil
Silver
Lumber
U.S. $
Blackberry

So, the questions is, is this a serious attempt to bottom out, or simply some short-covering before the end of the year? Their performance next year may hold the key to overall global strength or weakness...particularly, Oil, the U.S. $, Emerging Markets, and China.

2015 Market Volatility is About to Get Wilder for 2016

I can't get too excited about possible market follow-through in any one direction on the S&P 500 Index unless and until price breaks and holds either above 150 or below 100 on the SPX:VIX Daily ratio chart below.

Currently, price is still in what I call the "Major Conflict Zone." Yes, I realize it's a huge range, but that's the way 2015 has gone. In my opinion, I think 2016 will see greater volatility and much larger swings than we've seen this year...hang onto your (Santa) hats, folks!

My Market Forecast for 2015

As a contributing writer at Investing.com, I'm pleased to announce that my article: Market Forecast for 2015 -- "Shift Into Offensive Sectors" -- may be read at the following link (published at their website on December 21, 2014):

http://www.investing.com/analysis/2015-market-outlook:-236448

I'd also like to take this opportunity to thank the good folks at Investing.com for asking me to participate and share my views, not only on this topic, but also in all my other articles that they've published over the past several years...it's been a privilege.

Good luck to all next year!

* For your easy reference, I've re-printed my article, as follows...

Strawberry Blonde: Shift Into 'Offensive' Sectors

As we approach the end of 2014, we can see from the below Year-to-date percentage gained/lost graph of the Major Sectors that markets have favoured the "defensive" sectors (Consumer Staples, Healthcare, Utilities) plus Financials and Technology, while Housing has taken a back seat this year. It's my opinion that we may see a slight shift from, say, February until May of 2015, and a rotation into a more "offensive" approach (into Cyclicals, Industrials, Materials, Consumer Staples, and Housing) if (and only if) market participants are willing to assume more risk, and if Oil doesn't continue to slide down to or below $50.00. If we start to see more major selling in Oil for any sustained period of time, then I believe we'll likely see a major pullback occur in the equity markets...particularly, if the Fed hints at raising interest rates in mid-2015 or thereabouts.

Sector Performance December 31, 2013-December 12, 2014

Otherwise, if Oil stabilizes around 60.00-75.00, we may see a short rebound in the accumulation of the riskier sectors, until, say, May or June. This may involve some profit-taking in the above-noted "defensive" sectors, although, these may continue to outperform again, as they have this year. It really depends on the bottom-line forecasts and targets for overall percentage gains from equity markets to meet the needs of the major institutions and their clients for 2015.

However, I also believe that any further advance in U.S. equities beyond their current levels is dependent on further sustained strengthening of Japan's Nikkei Index, Europe, Brazil, China, Lumber, Copper, Housing, and the Russell 2000 Small-Cap Index. Likely, the US dollar will continue to strengthen if those markets (and those countries' economies) continue to show weakness. Links to my previous posts on these markets can be seen in my latest post here for further explanation.

Year-to-date, the SPX has gained 8.33%, as shown on the percentage gained/lost graph of the Major Indices, below. I think we'll be lucky to see half that increase in 2015 (say, a total of 4% for 2015), as I believe market volatility will increase and markets will consolidate in large trading ranges for longer periods of time in between moves, especially if we see a softening in the U.S. labour markets and wages.

Major Indices YTD Performance