Tuesday, September 06, 2005

How Far Up ?

The key to forecasting markets is to find the right analogy to the current situation.

I think that the " Katrina " low in the S&P futures at 1194 on Sunday night, August 28, was a low comparable to the August 2004 low and the April 2005 low in the S&P. Of course the market dropped 103 points into its August 2004 low and 93 points into its April 2005 low but only 53 points into its August 28 low. However, my reading of the market's sentiment is that the level of bearishness at last week's low was pretty much the same as at the previous two lows I cited so I feel pretty comfortable with the comparison.

If I am reading things right (and I always believe I am !) then the rally from the " Katrina " low should be comparable to the rallies from the previous two lows. From the August 2004 low the market rallied 16% over7 months while from the April 2005 low the market rallied 10% over 3 1/2 months. So using these precedents I expect the next top of significance in the S&P to occur somewhere between 1313 and 1385. A 3 1/2 month rally would end in mid-December, quite near my current Lindsay Three Peaks and a Domed House projection. A 7 month rally would carry the market up until next March.

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