Model Predictions, Mar 2017

I first spoke of the equity pricing model I follow in this post last November. Though I don’t plan on giving the details of the model, I do want to give updates as projections evolve. The model is but one input in formulating my market narrative, though an important one.

Last November, the model was signaling a dramatic final bull phase for this market, to the extent that I was willing to put a price target AND a time, which I’ll no doubt live to regret, namely S&P of 3400 in Q4’18. Updating with more recent data and some fine tweaking later, the model is still forecasting a sharp upward trajectory but also a little more volatility in 2018. The predicted peak is still a very respectable 3000+ in the S&P and the timing has been extended into 2019. There wasn’t much change in 2017 where I still expect the S&P to end the year with a 27 handle.

There is negligible impact on actual investment decisions — being directionally correct is can be asked for anyway. I have already carried out the slight increase in equity allocation in my passive portfolio, discussed here and here. I’m in the middle of a more dramatic over-haul of my active portfolio that I’ll go into in a future post. There is a final batch of stocks to buy and sell; the greater quandary, as always, is the timing. The market has been running hotter than the model predictions — a small correction from April to July has been anticipated, besides there are other voices calling a correction in May.

The most sensible course of action seems keep writing near term puts on the stocks I’ve picked out and let the market come to me.