How High is High?
The business of forecasting stock markets is fraught with peril even in the best of times. Every year toward the end of the year, Wall Street's investment firms release their stock market outlooks for next year. Investors, both retailer and professional, anxiously await these predictions.
Last year (2019), many of Wall Street's top strategists made their year-end predictions for the New Year (2020). Wall Street market pundits were forecasting modest or nominal gains to losses for the US stock market for year-end 2020. In general, market professionals did not expect too much from SPX for 2020. Nonetheless, they were optimistic on Financials, Consumer Discretionary, and Value related sectors and stocks. They were pessimistic on Consumer Staples and many of the defensive areas.
If you recall, financial media and press such as Wall Street Journal, Reuters, Bloomberg, and CNBC compiled the following year-end 2020 SPX forecasts from widely followed Wall Street prognosticators:
Wall Street Journal - The mean SPX target from the 8 investment houses for year-end 2020 came to 3,241. The high SPX forecasts were from Goldman Sachs and BMO at around 3,400 projections. The middle of the road SPX forecasts was from Citigroup and BAC/Merrill Lynch at 3,300. Stifel, Morgan Stanley and UBS were low with SPX targets 3,000 and 3,100.
CNBC - Conducted a similar survey compiling SPX year-end 2020 targets from 16 Wall Street Strategists. The highest forecast came from Goldman Sachs with an SPX projection of 3,700. The lowest target came from BTGI of 3,000. The average of the 16 projections was 3,377, and the median SPX target was 3,377.
Reuters - 52 Wall Street Strategists released SPX predictions for 2020. The average forecast for SPX by year-end 2020 was 3,260.
Based on the above predictions, many of the SPX forecasts for year-end 2020 gravitated toward 3,250. With SPX closing today at 3,635.41 (11/24/20) it appears many of Wall Street Strategists were too conservative.
So, where did we stand in terms of our technical SPX projections for 2020?
Our near tear-term SPX technical target was 3,225-3,234 (based on 10/25/19 and 10/28/19 triangle/ascending breakout projections). Our medium-term SPX target was 3,360 (predicated on the 1-year uptrend channel breakout on 11/26/19). Our intermediate-term SPX forecast was 3,653-3,740 (based on the 2-year broadening top/bottom or 2-year head/shoulders bottom breakout on 11/1/19).
2020 COVID-19 pandemic, the global lockdown, and the spectacular stock market crash during late February to March has left many Wall Street strategists scrambling to make sense of the marketplace, with many forecasters subsequently reducing their year-end 2020 targets.
As we fast forward today (11/24/20), a few investment firms have begun to release their year-end 2021 SPX projections. For instance, Goldman Sachs is predicting SPX to achieve a target of 4,300 by the end of next year. Morgan Stanley is projecting 3,900, JP Morgan is forecasting 4,500, and Jefferies is calling for SPX to reach 3,750. Other Wall Street strategists will soon release their SPX predictions in the upcoming weeks.
Wall Street forecasts continue to be crucial to investors. The highest or the lowest SPX forecasts on the Street tend to attract press and media attention. From a technical perspective, we believe these predictions are another way to help us better gauge market sentiments and understand the collective herding mentality of market participants. Since retail investors and professional investors tend to use their firm's SPX forecasts to implement various equity asset allocations and investment strategies Wall Street SPX forecasts can influence the near-to-medium term SPX trends.
Why? Bull and bear markets are influenced by market psychology and crowd behavior. The collective herding of market participants can trigger extreme moves in stock prices. Most stock market bubbles and speculation in the past are the direct result of excessive greed, which culminates in panic type buying. Conversely, many markets crash and bear market declines are associated with extreme fear leading to widespread panic type selling.
Since the stock market is forward-looking, it will try to discount all available information days, weeks, months, and possibly quarters in advance of the actual occurrence. So, when the masses have projected a specified SPX target for the end of the year, the market would have already anticipated this move by quickly trading to this projected target much sooner than expected, or will fall well short of its intended projection.
There continues to be a discrepancy or disconnect between Main Street and Wall Street as the latter is far more optimistic than the latter. Nonetheless, it appears more Wall Street firms are turning bullish for year-end 2021, as evidenced by the rising of their SPX forecasts. Enclosed below are our technical projections for SPX for the near-to-intermediate-term.
If you recall, our SPX forecast made late-last year called for a US stock market melt-up to develop before the start of the next structural bear market decline. SPX and other key US stock indexes will not only rally to new all-time highs, but it will also dramatically overshoot bullish targets triggering the speculative phase to the current 7-year structural bull trend. Remember, the May 2013 technical breakout above 1,57.09 ended the 2000-2013 structural bear/trading range market trend and officially confirmed the start of the existing structural bull trend. Our technical projections for 2021 are summarized as follows:
SPX Intra-day Chart Technical Projection:
Short-term = A 2-week symmetrical triangle breakout above 3,628.5 (11/24/20) suggests +134.08 points or a near-term SPX target of 3,762.5.
Medium-term = A 2-month triangle pattern breakout above 3,549.85 (11/9/20) suggests 378.66 points or a secondary SPX target of 3,928.5.
Intermediate-term = A 1-month pennant/flag breakout above 3,628.51 (11/24/20) suggests +412.05 points or a secondary SPX target of 4,040.5.
SPX Daily Chart Technical Projection:
Short-term = 3,675 coinciding with the top of the 2018 broadening top pattern.
Medium-term = 4,136 or the 161.8% Fibonacci projection.
Intermediate-term = 4,595 or the technical base of 1,201.66 points from the V-pattern breakout above 3,393.52 (Aug 2020).