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Market Rally: Last Chance To Protect Against Coming Crash?

Feb. 07, 2019 3:24 PM ETCSCO, KO, SPY19 Comments
Peter F. Way, CFA profile picture
Peter F. Way, CFA


  • Who says there will be a crash? Lots of “gurus” making a living, filling columns, bits & bites with asserted opinion. How about those with real skin in the game? Big skin.
  • Yeah, the market-makers [MMs]; big everyday bettors. They constantly assess whether this “recovery” has gotten ahead of support. Here are their expectations now – and past 6 months day by day.
  • But even if the whole “ship” isn’t going to sink, there may be some seriously leaky “lifeboats”.
  • This article provides a quick perspective of what the market pros see.
  • Another Seeking Alpha contributor will give you instructions on how to adjust your life-jacket.

Just when you thought the cruise was resuming

And 2019 started out as a refreshing change from a sobering 4Q2018, with the S&P 500 dropping from over 2,900 to 2,350, a -20% Christmas present. Its recovery to 2,737 gets about half of that back. But is it too fast, too soon?

The S&P 500 market index (SPX) does a better job of measuring what may be coming for overall stock prices because those investors (the “institutions”) making bets big enough to move market quotes are less influenced by “street noise” than an investing “public” which acts with bets on SPDR S&P 500 index ETF (SPY). The difference is one group’s yardstick that looks ahead (anticipating), while the public tends to be looking back (reacting) to what has happened. Still, for many practical record-keeping purposes, the two measures closely track one another.

Figure 1 shows how the MMs’ expectations of what may be coming in the next few months have evolved daily over the past half-year. Not as single-point price target guesses, but as well-informed and broadly reasoned evaluations of what are likely upper and lower price limits. Those ranges are shown as vertical lines.

The actual index quote on each day’s forecast is the heavy dot on the vertical line. It separates the forecasts into upside and downside prospects.

Figure 1

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

The professional investment community would like you to believe that no one can reliably forecast what the equities markets’ prices are likely to do, so that you won’t get in their way of privately doing just that. We have over 20 years of live-logged daily records on over 2,500 widely-held and actively-traded stocks, ETFs, and indexes which shows their accomplishments. This is just one example.


This article was written by

Peter F. Way, CFA profile picture
Peter Way Associates provides daily updated, near-term (3-month) price range forecasts for over 2,500 widely-held and actively-traded stocks, ETFs and market Indexes. Comprehensive results are available on the SA blog of my name.__These forecasts are derived from the way market professionals protect their own capital placed at risk while helping big-money portfolio managers adjust their holdings in multi-million-dollar "block" transactions.__ They cannot be found elsewhere.__Having these price-change prospects available on a continuous basis encourages individual investors to actively and economically build up the values of their own smaller portfolios. PWA only provides information for individual investors; it no longer manages investments for others.__Rates of portfolio capital growth being achieved by subscribers are at MULTIPLES of the growth in market averages, due to the efficient use of holding period time and the compounding of gains a number of times each year.__Risks of capital loss are protected against by insightful selection guidance and holding-period-limit disciplines. The advantages of good selection and careful timing amply cover a much smaller portion of unavoidable losses.__These Market-maker forecasts have several decades of demonstrated productivity. Earlier in the 20th century they were used by large institutional portfolios, and now in the 21st century they are available only to individual investor wealth-building portfolios. Thousands of day-by-day identifications of specific securities having consistent, odds-on profitable results rule out any likelihood of their exceptional outcomes being due to chance. Peter F. Way is a veteran Chartered Financial Analyst, having taken and passed the CFA Institute’s required 3 examinations in the first years they were given, 50+ years ago. Armed with BS in Economics from the Wharton School and an MBA degree from Harvard Business School, he has managed staffs of dozens of Investment Researchers and Quantitative Analysts for the nation’s largest bank, arbitraged index options for NYSE Specialists, and managed portfolios of hundred-million-dollar equity investments for Fortune 100 corporate pension funds and non-profit endowments. He has been elected President of professional Investment Analyst Societies in San Diego and New York City and has served on the editorial boards of the Financial Analysts Journal and the CFA Digest.

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (19)

Have been a happy blockdesk subscriber for over a year and a half. Seems like the times your overall market index gets to around 33-34 we get a significant pullback in the market such as in December. I know you have said not to worry much until it gets to around 50. Still correct? Any thoughts?
JustALittleGuy123 profile picture
An equally important characteristic to monitor is the SHAPE of the Market Profile; tall and orderly is good. Broad and squished flatter indicates too much uncertainty and a breaking of ranks. That was the shape it had a week before Black Monday in 1987. And yes, I personally witnessed Peter call it a week in advance.
Thanks ,JALG, for commenting on the finer details! You seem to know the blockdesk way quite well and your insight is greatly appreciated.
"Our present sense of market professionals’ market price expectations is that they see little to no serious declines in the averages and can quickly identify a dozen or more equities offering next 3-month gain prospects where average CAGR payoffs above +50% may reasonably be expected."

Figure 1 seems to indicate that the ~20% decline that took place between late September and late December was entirely unforeseen by the MMs, who saw much more potential upside than downside literally every step of the way down. The forecasts from September/early October weren't even remotely close. So why should anyone pay any attention to them now? They look pretty worthless to me.
jmcgoo- CMT profile picture
@peter F. Way, CFA Greetings from a long time back: was it Laird? Being a market technician our paths have not crossed in some years. Glad to see you are doing well. I had to close up Arthur Merrill's Technical Trends newsletter back in 1998. Been happily self-unemployed ever since.

We technicians were happily surprised with the joint Breadth and Volume Thrusts which occurred in early Jan. Only 8 back to 1949, all hugely successful. Arthur Merrill and I were always up for indicators with statistical accuracy, consistency. John McGinley, CMT

See article herein by Chris Ciovacco
User 12269 profile picture
Hi Peter, thank you for your interesting analysis and information. Peter, normally if someone has a compelling information advantage they keep it to themselves, run a hedge fund and make a zillion dollars. If they do not have a compelling information advantage they sell the information they have to others. Therefore do you run a hedge fund. If not why not? Thanks in advance for your reply.
TBD_long profile picture

Also the disclaimer is for common stock. editor's don't have to disclose option trades they have or etc.

Peter Way is definitely worth following. start a 'test portfolio' and become familiar with these articles and you'll benefit greatly.

by test portfolio I mean weather a real money portfolio with no significance, or a fake one.
Peter, interesting article, but what I fail to understand:
figure 1 shows that the market maker forecasts right to the start of October completely failed to anticipate the coming downside in their forecast ranges. And this is not just a short-term blip - 3 months later the market is still clearly below what was then expected to be the low end of the range.
Plus, throughout the market's decline in Q4, the forecasts kept predicting very little downside and a lot of upside. Even whilst the decline was in full swing, the forecast was consistently wrong and just always appears to predict a rosy future.
So, the forecasts were wrong in the short-term as well as the medium term (Oct-Feb). What good are they for then I wonder?
I greatly appreciate your articles as you are one of the few writers who focus on the macro broad market likelihoods. Having only recently (9-2018) returned to the market after a hiatus of 50 year (in the 70's I made a market in 9 local DC stocks for MLPF&S) and still only getting "a feel" of it, they are greatly appreciated.
I also enjoy the "tone" and gentle humor. Thank you
Mergers are contraction. I'd say the bank merger today depicts banks deciding they would rather deal with their competitors than the government. Its not just a lame new look congress, its all them democratic governors. Its going to help some, if it even gets approved, but what are the big banks going to do?
mickelsson profile picture
@Fast Buck: Note the complete lack of political ideology in Peter Way's articles. One of the reasons his method works so well is because it's based on fact and probability, not us vs. them political noise.
Good to see a measured look at the market after watching the chicken littles on CNBC wetting their britches over a 1+-% move today.
Thank you, Peter. Your articles are always so simulating.
@a neuffer and a little stimulating as well!! ( for all you proofreaders on soap boxes out there). (they both work)
achilleus profile picture
Great article I thank you.
David Pinsen profile picture
Thanks for the mention, Peter, and for the thought-provoking article.

Readers interested in my system’s approach to hedging can read more about it here: https://portfolioarmor.com/
peace 2 u profile picture
@Peter F. Way, CFA

How much of the market upturn beginning with December 24, 2018, is the product of the funds for 401(k) and other retirement accounts being deposited in December and January?

I am thinking that we are going to have to wait for a month or so before we know,

Just a thought or two.
Peter F. Way, CFA profile picture

thanks for your comment and question.

many investors are so absorbed by reports of past period reports and corporate activities that they often fail to relate their thinking to events yet to come. you are ahead of them.

The flows of funds to comply with retirement accounts have been a feature of market activities since I came into the business many years ago. With the switch of many corporate pension funds from defined benefit accounts (DBAs) to defined contribution plans their impacts became less of an influence to the market around year-end, but it still is a factor.

The flows are a regular presence on the calendar, and the investment management community regularly anticipates them. That works in both directions of securities price influence, so what may tip the scale to up or down trends may come from a different quarter.

Over the years we experience an uptrend, and I am glad to have that result this year, so far. Our MM sources at this point are still comfortable with it continuing for the next calendar quarter.

Best wishes for your investing progress.

@Peter F. Way, CFA Figure 1 shows that the forecasts were completely wrong. So why should the current estimates be more accurate?
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