I like to say my work is an evolution of time. With each experience, the charts become clearer to some extent. This is not to pull from Tom Brady and say that “I have all the answers to the test” which would be naive in the market at any time, but given my experience trading across market environments, I like to say that I have seen this story play out before. One way to do that is through analogs.

Before I began using python, my reliance was strictly through excel. Copy, paste, move cells around…make sure they all tie and then see a correlation. I relied on data that went back to 1998 and had a very good sample of behaviors to review. However, after giving my original programming a makeover from C#, I discovered that the world was not limited to just 28 years of data and that is where my “analogs” and forecasts took off. Do I have THE answer to the test? No but I do believe I am more informed!

A More Volatile 2010

So the first chart of the note shows three time periods – 2010, 1942 & 1960. As you can see from these various views, currently 2026 seems to be setting up where a bounce is coming. Not shown on the chart is the fact that the bounce probably could take us back to the highs near 7000. But that bounce is followed by a decline, similar to 2010 following the flash crash we had in May which led to high volatility and large swings before the S&P found low in early July of that year. Another interesting point about this is the lower chart is the bull-bear trend of the market – currently it is the strongest of these three periods. Yet, the S&P is the weakest this time around.

Changing the View…2008?

Chart analysis is all about changing the viewpoint. When I came into the business, my first mentor said to me to “flip the chart upside down” to get a different viewpoint. It worked wonders for me at the time because perspective is everything when a market (it was a chart of Coffee) was collapsing back in 2000. I am not going to flip a chart here but change the time frame. This one again, same analogs but over a shorter horizon – 100 days prior. The three periods showing are 2008, 2010 and 1981. Once again on this shorter horizon, the bull-bear trend is tied to 2010 and the price behavior has been in the middle of the mix.

If you take the chart above and this one, 2010 is the commonality. 2008 in this case is the “black swan” as the system melted down after one financial institution after another crashed (my Bear Stearns being one of them). In short, Iran might be “the” variable that sends credit off a cliff – if the war drags on and energy prices remain higher, perhaps some sort of selloff, like 2010 comes into play as the economy suffers. If the war turns against us and energy continues to zoom, 2008? In any event, the rest of this year is looking very murky.

But What About the Cycle?

Another view with these types of charts is long term. I have never been a big user of them for trading though when managing money over long time periods for individuals, I reviewed bull and bear scenarios (using the model from the lower chart). So let’s start with the four year cycle. This one goes back 290 days and then forward out to four years. In terms of information, this cycle best looks like 2009, 1997 & 2017. In each time period, the next 11 months all were sideways with much volatility. But markets were all higher than today 24 months from now.

Let’s Finish with the Presidential Cycle

This last chart is the presidential cycle. I did this chart from inauguration day and we are again lagging behind four similar periods (2009, 1997 and 2017). In 1997 and 2009, the S&P backed off (as noted above) while with the 2017 period, the S&P 500 peaked 200 days from now and had that tough December, 2018. The bull/bear trend is still the strongest of the bunch.

Taking This All Together

The short-term argues we will have choppy markets, a major low and then a solid bounce. The longer term charts argue the same, except for Trump I’s period, 2017. For the 100 day period, two of the period support the rally while one, 2008 argues, that a crash is possible. Putting it all together, we rally, we chop and on balance find a low before driving higher into 2027. I believe the market is pricing in worst case scenarios off of credit and Iran, not to mention $105 oil, which explains why the strength of the bull/bear is so high relative to the way things are trading. In terms of mean reversion then, if a rally does come (under what news I am unsure), it could be more pronounced than most believe, draw investors in and then dump hard if the news flow does not support it.

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