Study: the stock market will go higher over the next year


The stock market’s recent spike in volatility (VIX) gives us a lot of clues about the stock market’s medium-long term outlook.
VIX spiked above 40. This is rare. It has only happened 9 times since 1990.

  1. February 6, 2018 (current case)
  2. August 24, 2015
  3. August 9, 2011
  4. May 2010, 2011
  5. September 29, 2008
  6. September 19, 2002
  7. July 22, 2002
  8. September 17, 2001
  9. August 31, 1998

The stock market was close to making a medium term bottom in all of these cases except September 29, 2008 and September 17, 2001. Those cases do not apply to today:

  1. Those cases occurred AFTER the S&P had fallen far more than 20%. The S&P has fallen -11.8% in the current case.
  2. Those cases occurred AFTER the U.S. economy was already in a recession. The U.S. economy is growing at a healthy pace today. There are no important signs of a recession today.

The other 6 historical cases were medium-long term bullish for the stock market.

August 24, 2015

This marked a major medium term low for the S&P 500. The S&P almost retested this low 2 months later. The stock market was decisively higher 1 year later.

August 9, 2011

This was close to marking a major medium term low for the S&P 500. The S&P retested this low 2 months later. The stock market was making new all time highs half a year later.

May 10, 2010

The S&P continued to fall for more than 1.5 months after VIX crossed above 40. The stock market was making new all-time highs half a year later.

September 19, 2002

The S&P fell for 3 more weeks before making a medium term bottom. The stock market was decisively higher 1 year later.
This historical case does not apply to today because it occurred at the bottom of the S&P 500’s bear market.

July 22, 2002

The S&P fell for a few more days before making a medium term bottom. The stock market was decisively higher 1 year later.
This historical case does not apply to today because it occurred at the bottom of the S&P 500’s bear market.

August 31, 1998

This was close to marking a major medium term low for the S&P 500. The S&P retested this low more than 1 month later. The stock market was making new all time highs a few months later.

Conclusion

We can draw 2 conclusions based on this study:

  1. The stock market will close higher 1 year later in February 2019.
  2. The stock market will face short term weakness over the next few weeks.

3 comments add yours

  1. Seems like there will be a lot of bull/bear traps especially above the 2750 area. If we have an hourly close above 2750 but not a daily close above 2750, it would signal a bull trap. Which makes it hard to put on a swing Long not knowing if we retest the 200dma

  2. Now the next logical question would be whether we are closer to 2015 or 1998 today 🙂

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