Next Stop For S&P is 2800

FM Wealth Management NewsLetter

The Stock Markets are hovering at all-time highs; with still a bit of room to go higher before we see a real test of support.

 It was back in 2015-2016, when we were stating that the next major target for the stock market would be between 2535 and 2610 SPX.  We expected that many analysts would comment against such levels being reached. In fact, many of the comments centered around fundamentals and why they did not support such a “ridiculous” expectation. There was a whole list of reasons as to why fundamentals did not support that expectation.

Therefore while many were pointing out how there was no fundamental support the rally we were calling for, it only supported our view for the primary direction of the market. What Dr Douglas was pointing out, is that fundamentals as a predictive tool only works when the market is topping. So we can conclude that if most believed in weak looking fundamentals, it certainly would support a continued rally in the market, at least until those fundamentals started to look overheated. It is therefore reasonable that one can even come to the conclusion that fundamentals are lagging indicators when it comes to the stock market.

We are starting to see a number of experts point out that the fundamentals and earnings do support this rally. Yet we are 45% higher than we were in 2016 when everyone was saying that the fundamentals did not support our assertion for a rally to 2535-2610 SPX level. So now that we find ourselves there, the fundamentals are now supporting our original expectations? Are we the only ones who see something wrong here when it comes to forecasting the direction of the stock market?
Simply because fundamentals are now supporting current rally does not mean this bull market is going to end. Rather, we must understand how to view fundamentals in a larger context within the market. There is a significant period where the fundamentals and market price are aligned. To us it would appear that we are moving into such a period of time. This would lead us to believe that this bull market still has several years left to run along with positive fundamentals, as these fundamentals become more positive. An example of this is the 3% increase in GDP and potentially has the steam to move higher in the coming years.

We have often suggest to those engaged in fundamental analysis, and feel as though they have been left behind by a “bull market” which “just doesn’t make sense” to them, we suggest that you may need to consider that fundamentals are not what really drive the market and in fact lag market prices.  So consider that maybe, you will then be able to move beyond your old, out-dated thinking about what drives the stock market, so that you will be able to begin to consider market sentiment as the driving factor.

There are many people who dismiss our analysis because we look beyond fundamentals, at least you can now understand why we don’t burden ourselves with something, which will significantly lag the stock market and can negatively impact our perspective on the market. Our complete focus is on market sentiment, as presented within the fractal patterns we analyse in the stock market.

The fractal patterns we analysed in 2015-2016 lead us to the conclusion that the market was going up to the 2535-2610SPX level years ago. This was our first target region for the market when the market was in the 1800 region. Now that market has attained that target, I will tell you that our next major market target is in the 2800-2850 SPX region.