Model Predictions, Nov 2016

November was a month of turmoil as the numbers will make clear in my monthly update. Trump’s election was far from expected – I’ll make no further comment on the issue since this is not supposed to be a political blog. However, it does appear to be the catalyst for a regime change for both equities and rates.

I have mentioned several times the long-term equity price model that I have been following. What I want to do in this short post is to put down numbers and dates, a stake in the ground for future reference if you will. The near term prediction remains a low in Q1’17, the year-end rally notwithstanding. The model has time resolution to the first of every month and the low is shown to be February. I’m less certain on the magnitude of the correction but will use 10% as a bench mark. Far more important and remarkable is the longer term prediction: a straight shot up to S&P 3400 in Q4’18 from that low. That is a gain of well over 50% from here.

If true, it will be a market where fortunes are made. I have been raising some cash from my year-end bonuses. As we approach the correction in Q1, my plan is to put on some leveraged long positions using synthetic equities (an options strategy with short put and long call at same strike) in blue chip names. I like to put these on using leaps and further tweak them with split strikes or ratio calls.

The next two years will be interesting!

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