August 2014 – Monthly S&P 500 Market Strategy Update

Ukraine seems to be getting worse with pro-Russian rebels downing Malaysia Airlines flight MH17 over Eastern Ukraine. Israel decides to send in troops to Gaza after rockets have been fired from Gaza into Israeli broader settlements. The meanest and the most feared terrorist group in the world today, ISIS, seems to be accumulating and consolidating land and power in central Iraq prompting President Obama to send military observers back into Iraq.

Yes, it was a busy July for world affairs (and US Secretary of State) but the U.S. equities markets barely noticed.

But then Argentina defaulted on their sovereign debt during the last week of July sending the U.S. markets for a much-publicized down day, erasing the annual accumulated gains for the Dow Jones Industrials and shaved half the yearly gains in the S&P 500.

At least the U.S. financial markets noticed something!

As usual let’s have a look at the model price chart of the S&P 500 Index.


S&P 500 Index with weekly price bars and EBV Lines (colored lines)

S&P 500 Index with weekly price bars and EBV Lines (colored lines)


As a reminder we aggregate all companies in the S&P 500 Index into one chart on a market capitalized basis (like the S&P 500 Index itself), so we can see where the market – S&P 500 – is trading relative to its EBV lines.

As you can observe the US market, as defined by the S&P 500, is still in the middle of the zone bookmarked by EBV+3 and EBV+4. If the market rallied to EBV+4 (2176) this would represent a gain of some 12%. If the market corrected back to EBV+3 (1740) investors would be suffering losses of 10%.

For people new to Model Price Theory [MPT] the index value or price can move within an EBV zone with no real consequence. However when a transit occurs – index value or price crosses one of our parallel lines – of an EBV line, either positive or negative this gives Model Price users a signal that fundamentals are improving or deteriorating, respectfully.

Can the S&P 500 move down to EBV+3?


Would it mean anything?


Can the S&P500 make new annual highs?


Yup, the higher the S&P 500 Index value or price is from our calculated EBV+3 (red line) the more risk, and conversely less reward, investors are taking on their U.S. investments.

The world can be a complicated place. The global news media along with the Internet use a loudspeaker on any and all news. The din can be deafening and disorientating. But our model price charts have a calming affect if often used. It sooths me and puts everything in perspective.

Have I found anything in the financial information world to do the same thing?


But I’ve only got 30 years in the investment and finance business; maybe I haven’t found it yet?

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