February 2017 – Monthly S&P 500 Market Strategy Update

So where are we, markets wise?

There is so much Trump news and goings-on that the best instrument or piece of equipment in analyzing the financial markets are probably a pair of Bose ‘Noise-Cancelling’ headphones…and Model Price charts of course.

Since one of the nastiest US presidential elections in recent memory where Donald J. Trump assumed the presidency of the most powerful country on earth the market, as viewed by the S&P 500 Index, has rallied hard up against our EBV+4 line as you can see here in our short-term S&P 500 Index Model Price chart:


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 equity market, as defined by the S&P 500 closed February 3rd at 2,297.42. If the market rallied to EBV+4 (2323) this would represent a gain of some 1.1%. If the market corrected back to EBV+3 (1858) investors would be suffering Index losses of almost 19%.

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

Will the S&P 500 Index have a positive transit of EBV+4?

Forget everything you see about Mr. Trump in the news – I know it’s hard – but look at what the US equity markets are signaling. A positive transit of our EBV+4 line would mean positive fundamental economic news/performance/valuations down the road. That is right…crazy I know…but this is why you need math or structure (MPT) to point out what is really going on. Yes, people are protesting in the streets, much of the ‘Main Street Press’ is up in arms about everything this man does but the market is saying something different.

Long-term MP Chart of the S&P 500

Here is a longer-term chart of the S&P 500 Index since the beginning of 2009…


As you can see from this MP chart, we bottomed out at 666 on the S&P 500 Index back in March of 2009. And the S&P 500 stayed in the Zone of EBV+2 and EBV+3 for much of the next 4 years. Then in May 2013 (see arrow) we had a positive transit of EBV+3. And again, the S&P Index has stayed within the EBV zone between EBV+3 and EBV+4 for much of the next 4 years. (Coincidence in timing… I guess?)

But as you can observe the S&P has been pushing up against EBV+4 for some time for much of 2015, pulling back in 2016 and then rallying back to the top of the EBV zone since the November election and into 2017.


Since Donald Trump was elected President of the United States, the US equity markets, and let’s not forget world equity markets as well, has had strong market rallies. As far as the S&P 500 Index is concerned, we are on the verge of having a positive transit of EBV+4. This would mean the US equity market, the S&P 500, would want to trade in a valuation zone between EBV+4 (2323) and EBV+5 (3208) suggesting stronger economic and earnings growth some years ahead.

This may sound paradoxical with what is going on in the news and streets, but the markets are communicating something different.

One response to “February 2017 – Monthly S&P 500 Market Strategy Update

  1. cobbiangrant February 6, 2017 at 9:01 am

    I am embarrassed to be staying on this Trump train Brian. Please don’t tell my friends, I’ll put a little more in the collection basket at church.!

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