The S&P will probably make a 6%+ correction in Q1 2018. When this happens, the S&P will fall below its 100 simple moving average for the first time in a very long time.
The S&P has been above its 100 daily moving average for 276 consecutive trading days as of December 13, 2017! Let’s look at the historical cases in which the S&P is above its 100 sma for at least 270 days. What does the S&P do next?
Here are the historical cases.
- February 6, 1996
- March 26, 1959
- November 12, 1954
Click here to download the data in Excel.
February 6, 1996
March 26, 1959
November 12, 1954
As you can see, this study supports the hypothesis that the S&P 500 will make a 6%+ “small correction” in Q1 2018. The S&P simply cannot go up much longer without making a small correction. As of October 2017, this is already the longest rally in history without a small correction.
Other studies also hint that the U.S. stock market will be much choppier in 2018 than in 2017.
Here are 2 studies demonstrating how similar 2017 is to 1964 and 1995 years are.
- Low volatility: Today, the S&P has gone 52 consecutive weeks without a 2% up or down movement (weekly close vs close). This is the 2nd longest streak in history, and only 1964 was longer (79 consecutive weeks).
- Low volatility: the S&P has made 60 new daily all-time-highs YTD. Only 1995 (77 all time highs) and 1964 (65 all time highs) had more.
Both of these years were followed by a year of choppy markets that generally went higher.
My Medium-Long Term Model ignores small correction, so my portfolio is still 100% long UPRO (3x ETF for the S&P 500). But if you’re sitting on cash, now is not a good time to go long. Now is the time to be patient.