One indicator we have referred to often and which has a good historical record both in terms of predicting tops and bottoms and the price movement to them is Momentum. We prefer to use Momentum in a “collective” mode by looking at separate cycles as a trend develops to determine possible upside or downside price targets. Since momentum measures the impetus of a cycle, when it begins to lose steam, determinations can be made as to where a price move might end. Also, since Momentum tends to peak toward the half way point of a move, its possible to “measure,” considering the first leg of the trend, where the next leg ought to end both in terms of time and distance.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)
In the current environment, we took four measurements of the S&P 500, Dow 30, NASDAQ Composite, and Value Line index both in terms of price distance to completion of the bull trend that began in March 2009 and in terms of time used. First, long-term Momentum following the March 2009 lows in all four indexes peaked in April 2010. Momentum on the Major Cycle has not bettered those levels since then despite higher index prices. Upside targets based on those Momentum numbers suggest a long-term S&P high of 1560, Dow of 14400, NASDAQ of 3330, and VAY of 3850. Without getting into the minutiae of the calculations on the three other cycles, the average of our four Momentum measurements in terms of price puts the S&P toward 1550, the Dow at 14300, the NASDAQ at 3330, and the Value Line at 3540.
Then we looked at upside targets in terms of time used from that point at which Momentum peaked on the long-term back in April 2010. The S&P, Dow 30, and NASDAQ Composite were all just over 10% shy of equaling the time used during their first leg up while the VAY was a bit overextended at 105%. Put another way, while the S&P, Dow, and NASDAQ could play a bit of catch up in the time just ahead, the VAY might begin to stall.