The Short-Term Expectation For Stock Prices

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Includes: DIA, IVV, QQQ, SH, SPY
by: Peter F. Way, CFA

Summary

This has to be written this way because many readers were recently led to believe I was advising investors to flee the stock market, when I was not.

We regularly address that segment of Seeking Alpha readers looking for effective ways to accelerate their capital gains accumulation to meet known financial needs coming sooner than conventional strategies permit.

We do that by advocating an Active Investing discipline (TERMD) using repeated equity selections with holding periods only 3 months or less if specified sell targets are reached earlier.

The selections come from best-ranked equity price forecasts made by Market-Making firms, vetted by how well their prior forecasts of the past 5 years, like today’s, have performed.

This strategy works exceedingly well but requires the investor to view the task from a very different perspective than is conventionally advocated and cannot be effectively combined with buy & hold practices.

How can it help the DIY investor?

It compares virtually all of the stocks and ETFs most frequently held by individual investors on the basis of the likely range of prices to be expected in the next 3-4 months. So, a frequency distribution of the upside-to-downside balance of likely coming price change for over 2,500 such securities provides an overall picture of the coming price changes for the overall market. At least as what is seen by market professionals in terms of what their big-money fund clients are likely to make happen.

Figure 1 shows how that array of price change expectations looks at present.

Figure 1

(Note: all materials from blockdesk.com have been approved for use in this article)

This distribution counts the number of equity securities using the small square units seen at right stacked upon one another. Some 2,700 securities are present.

The horizontal scale at bottom is a measure of the proportion of each equity's coming price range uncertainty which at present is below its current market quote. Issues with large downside price change prospects are on the right side of the scale and those with small drawdown potentials are on the left. Negative amounts indicate current market quotes below justifiable lower price expectation limits.

At present, some 35 issues are severely underpriced and off the scale on the left-hand side. An issue with as much downside foreseen as upside would be at the 50 mark of the scale.

This Market Profile shifts its position from left to right as price forecasts become more involved to the downside. Figure 2 shows in red what the profile looked like at the market peak in 2007, and in green what its appearance was when the market was low in mid-2016.

Figure 2

Central tendencies of these extremes are Range Indexes of low-20s to mid-50s. Current-day average Range Index is 29, on the lowish-side but not extreme. As market sentiment intensifies, many issues often become priced at extremes, relative to current expectations for prices to be seen within 3-4 months.

Fuller descriptions of the source and use of this information

The derivation of these forecasts is described in the recent Seeking Alpha article linked here. Just why these forecasts are credible is explained.

A multi-year example of the wealth-building productivity of the TERMD portfolio management discipline is presented in this recent Seeking Alpha article.

To better understand how and why this information and its disciplined use provides markedly superior investment capital gain performance, you are urged to read these two relatively brief articles.

Conclusion

Present professional investor expectations for coming equity prices near-term do not see prevalent further equity securities in serious decline. In fact, many advantageous buying opportunities seem to be present already. We will continue to offer comparative suggestions in coming days.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.

We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided.