"Everyone has a plan 'till they get punched in the mouth" - Mike Tyson

November 29, 2015

A Look Ahead

Goldman Sachs recently came out with their 2016 preview.  They mentioned they expect 2016 to be a flat year in the markets.  My buddy Ryan Detrick over at Kimble Charting Solutions  notes that back to back flat years just don't tend to happen.  In fact, they tend to lead to strong moves.

Here's Ryan's take:
The bottom line is a flat year next year is highly unlikely.  As with anything, it could happen - but history would say be on the lookout for a big move next year.  In fact, I found 22 years were flat and the following year moved at least 10% (up or down) 14 of those times.  So, about two out of three times it moved double digits after a flat year. 
Aaron here - So we want to figure out if a big up or big down year is more likely.  The two critical factors we need to consider are earnings trajectory and the chart of the S&P 500.

First lets look at earnings via Goldman Sachs chart.  They expect about a 10% increase in 2016.  That's bullish.

Let's look at the S&P 500 chart.

That's pretty clear resistance we're leaning up against.  Pattern wise we may be looking at a rounding top.  We'll have a clear read sooner or later.

My Take:  If the S&P 500 can take out the 2015 high by more than a few pennies, we could be setting up for a strong 2016.  Otherwise, it's not worth being aggressively bullish from a broad market view.

We also need to consider the fact that forecasting is hard.  Murky global economic trends are only complicating matters.  The point is, it's very important to not be blindly bullish based on earnings projections.  After all, the market will sniff out the truth.


I love floors that form in charts.  Why?

Floors capture the essence of buying low.

Plus, they tell us when longs are buying and shorts are covering.

People tend to become disinterested in a stock when the floors are going to work.  You can use psychology as an added edge.

Frankly, they just fit my trading.

What's awesome about floors? 

You know where you are wrong.

Where you're wrong is close by.

Similar principles work on nearly all time frames.

They often form after a long term false breakdown.

What stinks about floors?

They can be temporary or closer to permanent.

It's hard to know when they will hold.

You never know how long they will consolidate.

America's biggest problem

There's a lot of talk and frustration over the Allergan and Pfizer merger that takes Pfizer's massive tax base overseas.

As an American, this is disappointing.  Unfortunately, this is a continuing trend that uncovers one of America's greatest problems today.  Poor treatment of capital.

Wriston's Law of Capital states that capital flows to where it's welcome and stays where it's treated well.  Wriston also notes that capital isn't just money.  It's people and ideas too.  Let's take a look at the state of 'capital treatment' in the U.S.

Monetary Capital

Ever since the financial crisis, large corporations and the wealthy have been targeted by our society.  It's one thing if that is a public perception.  It's taken to a whole new level when the government gets involved.  The Obama administration has basically led the charge.  Not only by tax code, but by rhetoric as well

If the next administration continues down this path, that really reiterates a negative tone for corporations.  This could be very problematic, as the east quickly catches up to the west and global competition continues to rapidly escalate.


One area that the U.S. is really thriving in is how it treats people.  Yes there are many things that are shoved in our faces because of media, but what countries around the world are competitive economically and treat their citizens better?

What's really interesting is the college bubble.  We're all aware of the bullshit degrees and universities out there that don't prepare you for much.  That said, so many employers are willing to pay for employees to go to trade schools.  Special skills such as coding, of course are in ever increasing demand.

We have a certain percentage of the population completely screwed in important industries such as healthcare and education.  This horribly mis-aligns incentives.  

Perhaps this created our current 'mixed bag' dynamic - the best and brightest are still in a great treatment, but the environment for creating more citizens that will greatly contribute to society continues to erode.


There are a lot of controversial emerging technologies from medical science to machine learning and robotics, self driving cars and virtual reality.  We know the U.S. largely has a 'bought government'.  How does regulation end up treating these massively disruptive technologies?  If we see resistance emerging from the government, the U.S. is, for lack of better words, in a confirmed structural downtrend.

All in all, America is still relatively friendly to every type of capital.  However, if these cyclical problems become secular, we have a lot to be concerned about as U.S. citizens.  Come to think of it, these might already be secular in nature.  Again, it's just as important that the U.S is better relative to its global competitors.

It's a good thing that people freak out about this stuff, it helps keep America's compass on the right track.

Thanks for reading!


All ideas shown on this blog represent the authors opinion based on the data available.