At the end of November 2011 the U.S. behavioral indicator for the U.S. stock market, based on insights on investor psychology, touched the crisis threshold for the fifth time (1971,1979, 1986, 2006) since 1970. If the current case follows the four prior cases, we expect a similar positive return from November 2011 to the end of October 2012 as in the four prior periods followed by a decline somewhere between 15% and 30%. [Let me explain.] Words: 317
So says Todd Feldman in edited excerpts from a recent article* posted on www.SeekingAlpha.com.
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Feldman goes on to say, in part:
Let’s take us take a look at the annual return of the four prior cases once the indicator hits the crisis threshold [in the table below].
Table 1: Return
Assuming that the 2012 return corresponds to the returns above, we should expect high returns for the majority of 2012. Therefore, we are bullish for the U.S. stock market in 2012 up until November.
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Once the years noted above ended, the stock market declined in all four instances… [as shown in the table below]…
Given the dynamics of the current 2011-2012 indicator, we believe this current cycle is more closely related to 1979-1980 and 1986-1987. Therefore, if the return of the U.S. stock market going into October of 2012 is around 20%, we then predict a 15% decline in the following two months. If the return is between 30-40% or more, we then would predict a larger decline over two to three months…
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