Bill Luby: With phrases like “inflection point” and “fiscal cliff” ricocheting around in their heads over the weekend, investors had quite a few extreme scenarios in mind for equities today, but for the most part, hovering around the unchanged line was not considered a likely outcome. Yet, 1 ½ hours into today’s session, stocks are essentially flat.
I mention all this because if one looks at a monthly Andrews Pitchfork chart for the last two decades, the moves in stocks over the last 2 ½ years or so look remarkably unremarkable, with stocks hugging the middle prong of the pitchfork, which currently points at a “fair value” for the SPX of about 1265.
Part of the reason I am posting the chart below is that it shows a surprising degree of moderation and mean reversion in recent stock moves. The other reason I have attempted to shoehorn Andrews Pitchforks into the discussion is that the last two times I posted about these charts, I have received very strong reader feedback that suggests those who are seeing these charts for the first time are attracted to the visual simplicity and underlying logic of these charts. Going forward, this Andrews Pitchfork chart will provide some real value if it can help to define a channel and mean reversion target for stocks. With all the macroeconomic uncertainty out there, it would be nice if something in the technical toolbox can provide investors with some meaningful context that incorporates elements of both volatility and direction.
For more on Andrews Pitchfork charts, check out the two links below.
Related: S&P 500 Index (INDEXSP:.INX), SPDR S&P 500 ETF (NYSEARCA:SPY).
Written By Bill Luby From The VIX and More Disclosure(s): none
Bill is a private investor who also authors the VIX and More (http://vixandmore.blogspot.com/) blog and an investment newsletter from just north of San Francisco. His research and trading interests focus on volatility, market sentiment, technical analysis, and ETFs. Prior to becoming a full-time investor, Bill was a businessstrategy consultant for two decades and advised clients across a broad range of industries on issues such as strategy formulation, strategy implementation, and metrics. When not trading or blogging, he can often be found running, hiking, and kayaking in Northern California. Bill has a BA from Stanford University and an MBA from Carnegie-Mellon University.