According to my cyclical valuation work, I have the SPX as fairly valued at 2610 for 2018 at 2720
through mid-2019. The modest increase in valuation product into next year reflects another year
of positive earnings direction offset by a reduction in the market's p/e ratio to reflect a higher
inflation rate of 3% by mid-2019. Although the inflation pressure gauges currently remain in
rather humble uptrends, that should change as the large fiscal stimulus programs kick in to boost
an already maturing economic expansion. there could very well be an interim period starting in
a month or two when the economy temporarily slows, and market players run-up stock prices in
the erroneous assumption that "Goldilocks" has returned to preside over a period of more modest
growth and continuing low inflation. If such a strong rally occurs, there might be a classic
"get out " rally to reduce equity exposure.
Despite the current correction, the stock market remains strongly overbought on a long term
basis and mildly overdone in the intermediate term. The main trend of the market remains in
bullish mode with intermediate trend supports around 2600 on the SPX. Longer term trend
support stand around 2500. SPX Weekly
Do not ask me where the market is going over the couple of weeks. However, by my conservative
trading discipline, I would give the market a hard look for a long side fling if the stochastic
measure (bottom panel of the chart) drops inside the 20 level.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!