As Niels Bohr commented “Prediction is very difficult, especially about the future” is one of the classic quotes. However this doesn’t stop Mr. Byron Wien and Mr. Doug Kass from making predictions for the year ahead. On slow business news days leading up to 4th quarter earnings announcements this is candy to both the mainstream business news and the blogosphere alike.
What did catch my eye in both men’s opinion was the decidedly bearish nature of their predictions for 2013. Byron sees the S&P 500 trading below 1300 as the market trades down on disappointing revenue growth and profits. He also sees a rough year ahead for financials. Doug sees the U.S. economy disappointing relative to consensus expectations as well with a resulting earnings drop for S&P 500 companies. Kass also sees financials as a loser for 2013 after big gains in 2012.
What is one to make of these predictions?
This is the wonderful thing about model price charts. Predictions can be made with certainty with very high probability of success when both positive and negative transits occur of our EBV lines. So let me finesse these predictions a bit with our model price work.
Financials are the Key!
As I have pointed out many times in my monthly S&P 500 – Market Strategy pieces, Too Big to Fail (TBTF) financials are an important tell on the market. As I have pointed out both JP Morgan (JPM) and Goldman Sachs (GS) have transited above their EBV-3, EBV lines. This is a market positive. And as long as these names continue to trade above these levels I will be constructive and looking for opportunities to invest. If JPM and Goldman transit negatively below their EBV-3 levels, this in my opinion will be very bearish for the market.
Canaries in the Proverbial Coal Mine
If JPM and Goldman stay above their EBV-3 levels and climb higher during the year, these two men’s predictions will look pretty stupid. However if these two names transit down through their EBV-3 levels they both will look prescient. We should call these two companies canaries, because they will tell you where the market action will be heading. This is my prediction!
Model Price Charts of JPM and GS
JP Morgan with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of JPM subsequent to this post will be maintained on Facebook, here.
Goldman Sachs with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of GS subsequent to this post will be maintained on Facebook, here.