FM Wealth Management News Letter
The trap is the same throughout whatever period you wish to review
for the average investor. Investors become over exuberant, and then
there is a correction, sentiment resets, which is then followed by a
market rally as they move to the next phase of market over exuberance.
I know what you are asking, and yes it can really be that simple. We tend to overthink and overanalyze matters by relying on economics and fundamentals, which have proven to be unreliable at major market turning points.
It starts by looking at what happened in the prior year, which is often not going to be instructive as to what will occur in the following year, and that is what you do when you rely on fundamentals and economics to linearly forecast 2018. The equity markets are not linear just like life is not linear.
We start every year hearing many of the old market adages that will not help you in 2018. If we use the old market saying that as January goes, so goes the rest of the year. How would that have worked in 2016? Even in 2017, January was a sideways month, yet the market went on to major gains. Another is “sell in May and go away” that would not have worked out for you in 2017.
If you take a broad perspective approach Markets are really quite. A way of looking at this is we have seen that society generally progresses through history, therefore we should also expect that equity markets will follow society’s general path of progression.
There are periods of time of regression, which make us forget that we are generally on a path of progression. Which is why we continually point out that those who are able to rise above all the noise presented to you on a daily basis will likely do much better than the average investor.
A significant amount of bear market talk has been heard during the last two years. We are presented with a myriad of reasons as to why these markets were going to imminently collapse, and we have listed them for you many times in the past. Yet, market participants continue to look at old economic data or news events in wasted efforts to foresee which way the market is likely to turn. So if the last two years has not taught you this lesson, then nothing likely will. It is hard to admit that we sometimes put on blinders.
Let’s tart by looking back at 2016-2017, and then consider how we see 2018 within that context.
While we were strongly bullish the S&P 500 (SPX) as we came into 2017, we were certain that SPX had to go much higher to achieve the long-term targets we set years ago for this degree of wave structure, in fact SPX has surpassed our targets during the last few months of the year by about 4%.
While we were looking for a rally from 1800 to as high as 2611, which is a 45% gain, actual market performance came in at closer to a 49% gain from the lows struck in 2016. While we try to be perfect, unfortunately, there is no such thing as perfection when dealing with a non-linear system such as the stock market.
On the other hand if we told you at the beginning of 2016 that we were confident in a 45% rally in the stock market over the next two years, but you might miss the last 4-5% of the market move, you know you would be quite happy with analysis that guided you confidently for 90% of that market move. And, when you also consider that we caught that last 9% move in the Russell 2000 index (IWM), well, we think you have to agree that we did quite well for 2016-2017 when most were talking about the markets heading down.
Looking forward, we ask that recognize that by no means are we looking for the end of this bull market, which began in 2009. We find ourselves now within wave three of the five wave of the larger degree third wave within a five wave FM Wealth Management wave analysis coming off the 2009 lows (as we demonstrate on the monthly SPX chart).
We likely still have several years to go before we complete this bull market run off the 2009 lows it will take until well into 2019 before we complete all of wave 3.
Since FM Wealth Management uses a wave analysis to see mass sentiment moves through bullish and bearish periods of progression and regression, we are completing a wave third in the equity markets, which often ushers in a fourth wave in 2018.
This would mean that we could see a pullback into early 2018 in all indices, with some counting as a smaller degree 4th wave in the Financial Select Sector (XLF), whereas others would be an A wave pattern of their fourth wave which we already saw in Russell 2000. This would mean that the expected rally would start in March with a fifth wave in some indices like the XLF, whereas IWM may lag a bit in a B wave patter. Ultimately we are suggesting that the bigger pullback we want to see in wave 4 may not occur until the late early summer or late spring.
As we have noted many times before, many will likely consider the drop we expect in 2018 the end of the bull market, so I still suggest you ignore the noise in 2018. Our analysis suggests that it will likely be another buying opportunity for the next phase of the rally and we will be targeting 2850-2950 next. In fact, if we are able to complete the full structure we have outlined on our monthly chart, we will not likely complete this bull market until the early 2020’s. So, if you are going to put your bear suit for 2018, please make sure to recognize that it will only be for a short-term engagement.
We here at FM Wealth Management would like to take this opportunity to wish everyone a happy, healthy and prosperous new year to you and your families.
I know what you are asking, and yes it can really be that simple. We tend to overthink and overanalyze matters by relying on economics and fundamentals, which have proven to be unreliable at major market turning points.
It starts by looking at what happened in the prior year, which is often not going to be instructive as to what will occur in the following year, and that is what you do when you rely on fundamentals and economics to linearly forecast 2018. The equity markets are not linear just like life is not linear.
We start every year hearing many of the old market adages that will not help you in 2018. If we use the old market saying that as January goes, so goes the rest of the year. How would that have worked in 2016? Even in 2017, January was a sideways month, yet the market went on to major gains. Another is “sell in May and go away” that would not have worked out for you in 2017.
If you take a broad perspective approach Markets are really quite. A way of looking at this is we have seen that society generally progresses through history, therefore we should also expect that equity markets will follow society’s general path of progression.
There are periods of time of regression, which make us forget that we are generally on a path of progression. Which is why we continually point out that those who are able to rise above all the noise presented to you on a daily basis will likely do much better than the average investor.
A significant amount of bear market talk has been heard during the last two years. We are presented with a myriad of reasons as to why these markets were going to imminently collapse, and we have listed them for you many times in the past. Yet, market participants continue to look at old economic data or news events in wasted efforts to foresee which way the market is likely to turn. So if the last two years has not taught you this lesson, then nothing likely will. It is hard to admit that we sometimes put on blinders.
Let’s tart by looking back at 2016-2017, and then consider how we see 2018 within that context.
While we were strongly bullish the S&P 500 (SPX) as we came into 2017, we were certain that SPX had to go much higher to achieve the long-term targets we set years ago for this degree of wave structure, in fact SPX has surpassed our targets during the last few months of the year by about 4%.
While we were looking for a rally from 1800 to as high as 2611, which is a 45% gain, actual market performance came in at closer to a 49% gain from the lows struck in 2016. While we try to be perfect, unfortunately, there is no such thing as perfection when dealing with a non-linear system such as the stock market.
On the other hand if we told you at the beginning of 2016 that we were confident in a 45% rally in the stock market over the next two years, but you might miss the last 4-5% of the market move, you know you would be quite happy with analysis that guided you confidently for 90% of that market move. And, when you also consider that we caught that last 9% move in the Russell 2000 index (IWM), well, we think you have to agree that we did quite well for 2016-2017 when most were talking about the markets heading down.
Looking forward, we ask that recognize that by no means are we looking for the end of this bull market, which began in 2009. We find ourselves now within wave three of the five wave of the larger degree third wave within a five wave FM Wealth Management wave analysis coming off the 2009 lows (as we demonstrate on the monthly SPX chart).
We likely still have several years to go before we complete this bull market run off the 2009 lows it will take until well into 2019 before we complete all of wave 3.
Since FM Wealth Management uses a wave analysis to see mass sentiment moves through bullish and bearish periods of progression and regression, we are completing a wave third in the equity markets, which often ushers in a fourth wave in 2018.
This would mean that we could see a pullback into early 2018 in all indices, with some counting as a smaller degree 4th wave in the Financial Select Sector (XLF), whereas others would be an A wave pattern of their fourth wave which we already saw in Russell 2000. This would mean that the expected rally would start in March with a fifth wave in some indices like the XLF, whereas IWM may lag a bit in a B wave patter. Ultimately we are suggesting that the bigger pullback we want to see in wave 4 may not occur until the late early summer or late spring.
As we have noted many times before, many will likely consider the drop we expect in 2018 the end of the bull market, so I still suggest you ignore the noise in 2018. Our analysis suggests that it will likely be another buying opportunity for the next phase of the rally and we will be targeting 2850-2950 next. In fact, if we are able to complete the full structure we have outlined on our monthly chart, we will not likely complete this bull market until the early 2020’s. So, if you are going to put your bear suit for 2018, please make sure to recognize that it will only be for a short-term engagement.
We here at FM Wealth Management would like to take this opportunity to wish everyone a happy, healthy and prosperous new year to you and your families.
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