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Where Will Markets -- NDX and SPX -- End on December 31, 2012?


Here, a technical take on ascertaining the most probable hypothesis.

It seems we're always in transition and that it's more about trends that about what's meaningful.
– Anonymous

For the majority of last week, while reading, viewing, and listening to various market commentaries, a forgotten annual occurrence came flooding back to memory. You'd think after nearly 25 years in the business it'd be something at the forefront of my mind this time of year. Nevertheless, the same question seems to fester in the minds of investors as we enter the fourth quarter: Where are the markets going to end on December 31? This -- considering the election, economics on the precipice, and QE infinity -- is anyone's guess.

Accordingly, today I will present our firm's technical take on how we attempt to ascertain the most probable hypothesis. In doing so we use a date/return slope calculation which is rather simplistic but seemingly accurate when taking into consideration a few assumptions, the first of which is purely a trend or channel assumption.

Otherwise stated, you have to be able to determine the most probable sustainable trend and/or channel that could -- the key word being "could" -- remain until year's end. The second is assuming said trend/channel is not broken. Realizing these are immense assumptions is rightly the shortcoming of this type of analysis. With that said, I continue.

Today's graphs -- the Nasdaq 100 Index (INDEXNASDAQ:NDX) and the S&P 500 Index (INDEXSP:.INX) -- show the bounding channels of both indices since August of 2011. Starting with the NDX you can plainly see the intermediate-term bull channel, outlined in blue. This has an enormous range of nearly 16% as it vacillates from its lows to highs. Based on its top and bottom values of the time differential, we projected this out until December 31. The analysis, again with the aforementioned assumptions, gives the NDX an ending range from 2,860 to 3,300.

Click to enlarge

The SPX, on the other hand, has less of a slope and a somewhat smaller range. The range of this channel, again from August of 2011, is approximately 12%. By using the same time/return calculation we project a 1,425 to 1,590 end range for year end.

Click to enlarge
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No positions in stocks mentioned.

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