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What’s the next S&P 500 move?

Prediction If you study the markets and browse a bit into history and seasonality of the markets you can get some nice numbers about the market behavior.

That can provide with some foresight and clues of what the market may do next.

However, let me stress out again that in the markets “EVERYTHING CAN HAPPEN” no matter what YOUR expectation, analysis, or seasonality says! You must never rely on it and then be disappointed when your expectation doesn’t materialize!

So, if I say today that I expect the market to create new all time highs in the next two months it still is not a prediction and I am aware that it may not happen at all.

If you place your trade with a set up based on this “prediction” or you are in a bad trade and hope that this “prediction” will finally help you out you are wrong and you shouldn’t be trading.

Looking for confirmations of a trader’s bias is one of the biggest psychological mistakes a trader can make when trading. If you are in a bad trade and the only way how to get out is when the market makes a new all time high then you would probably love this post as it will give you hope. But it will also give you a false hope, false self relief, and false peace of mind.

And you will also hate this post and the entire blog the moment this “prediction” doesn’t come true.

Do not set your minds set on a false expectations. Use those “predictions” and expectations as guidance and not confirmation of “what you want to hear”. Just go to Stocktwits web site and you will find majority of traders hopelessly searching for posts which confirm their outlook on a stock position and they are so blindfolded that they ignore signals from Mr. Market.

 

 · So, what is my next move expectation?

 

Warren Buffett
 

As I mentioned it above, I expect S&P500 to make new all time highs in the next 2 months. Why?

Let’s look at the history a bit. Lately, the market went through a small correction of 11%. The question is what happens next and history can provide a window to see. We want to look for how long it took the market to recover from 10% corrections in the past. Here are some numbers:

 

10% correction Days to recover
June 12, 1950 48
June 12, 1950 48
January 5, 1953 121
September 23, 1955 23
August 3, 1959 64
May 13, 1965 60
September 25, 1967 51
October 10, 1983 124
August 27, 1986 46
January 3, 1990 82
May 23, 1996 42
February 19, 1997 33
October 7, 1997 26
July 19, 1999 21
January 3, 2000 16
July 16, 2007 35
April 12, 2012 55

 

There are a few patterns visible:

1) Corrections are faster and steeper then before.
2) Recoveries take shorter time than before.
3) Average recovery time is 1 to 3 months.

 

With the average recovery 1 – 3 months and shorter times than in history it seems that a claim of a full recovery and new ATH in 2 months is a doable event.

But again, remember, everything can happen, even a situation that the recovery will take longer or not at all.
 





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