Monday, June 27, 2016

Post Brexit Simple Math

During the past twelve months the S&P 500 has been in a range between 1810.10 and 2132.82. Given the earnings recession in the US, the extreme currency fluctuations, the significant decreases in global stock markets since last year, my take is the S&P isn't even worth purchasing until it is below 1970. Here is the simple math 2132.82-1810.10=322.72, which defines the range of the market. Taking 322.72 and dividing the range by 2 shows me the 50/50 risk reward point. 322.72 divided by 2 equals 161.36. 1810.10+161.36=1971.46. My simple math given this weakening economic environment is that I have little to no margin of safety at any S&P values above 1971. If you purchase the market at 1971 or lower and anticipate that it can eventually get back to the old high then you have ~8% upside and if it the market retests the lows there is about 8% downside. To get a 25% return to old highs the market needs to retreat to 1706. Going down to this level also completes a 20% correction in the market from the 2132.82 highs. Bottom line: market buy zone in my mind, using my simple math, is 1704 to 1971 and if the market breaks 1690 we could be in for an extended bear market. Let's see how this plays out. The asset classes continue telling a defensive story with increases in gold, utilities and the long US treasury. Value has also started doing better than growth, highlighting the growth slowing story. Wise investing my friends.
Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.

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