Why the S&P500 Will Hit 1800 (and Maybe 750)
Where is S&P500 going to go?
PRICE CHANNELS
Uptrend
We're in an uptrend price channel from 1937 to now, and we're currently at the top of that channel.
If we hit the bottom anytime soon it'd be somewhere in the range of 1600-2000.
Previous Crashes
We also have a channel created by the 2000 and 2008 crashes. We've broken out of the channel, but that means the trendline connecting the two peaks provides strong resistance at 1700-1800. Hmm, that's in line with the uptrend. Interesting.
BUFFET INDICATOR
Ok, here's a bad explanation of the Buffett Indicator. The GDP is the sum of all outputs from every US company. The value of each individual company is captured in their stock price. So the sum of all stock prices should equal the GDP, or at least be a consistent percentage of it, IndexPrice / GDP. I believe this is normally done with the Russel 5000, but I'm going to estimate with the SPY. When the buffet indicator increases, things are overvalued. But not in the normal "the made up RSI calculation is over 80 b/c people have been consistently buying." No, it's literally, and by definition, overvalued; the aggregate stock price has been increasing higher than aggregate production. You can see the bubble pop when things spike high enough, although it's dangerous to try and time it. And the ratio is unbelievably high: 239%. Stocks are almost two and a half times more expensive than they should be. Biggest bubble ever by a standard deviation. This graph is terrifying.
There's a couple ways of looking at this. The easiest is to look back in time, and draw a flat line at the average of the Buffett indicator. But as the boundary between profit from national and international operations get blurred, it makes sense that the ratio could increase over time. 100 years ago, Ford only paid US wages and only sold to people in the US. Now their US wages are a percent of total wages and US sales are a percent of total sales. The amount of Ford's production that contributes to US GDP depends on those percentages. So how does Buffett indicator increase? Hell, I don't know. Maybe it's linear, maybe it's exponential. I suspect that over the next hundred years, it would increase in an S-curve cause there's a limit on how integrated counties can be (limit=no countries), and that would act as a dampener, but that's so far away that even imagining no countries sounds like some sci-fi antipolitical nonsense. I did the math for estimated linear and exponential though.
The S&P500 should be somewhere between 1900 and 2250. Same range as the channel. Interesting. Although, there's usually an overcorrection under the 100% Buffet line as everybody panics, and that normally stalls out at about 40-50%. The current price of about 4500 is 239%.
Ideal Price:
1/2.39 = 42%
42% of 4500 is about 1900
Panic Bottom
.40/2.39 = 16.7%
16.7% of 4500 is about 750
We're so overvalued we could realistically panic all the way down to 750. It's not that that's too far of a drop to be realistic, it's that we're so so overpriced.
FIBONACCI
The rule of thumb is that a trend hasn't retraced until it's hit 50%. Since the 2008 crash, we haven't had a 50% retracement, so that's still the long-term swing low. If we were at the peak right now, the 62% retrace from the 2008 low would be 2150.
I noticed another interesting thing. The 2020 covid crash was about the 38% retrace, and it was preceded by a dip of about 23.6%, and that was preceded by a 14.6%. Not exact on all of them, but close. 14.6, 23.6, 38.2, ...61.8?. I'm just an overexposed photo of a dress, but that's an interesting trend. I started to look at "when?" and the fibonacci time frames of these three little blips match-up with the 2000 and 2008 crashes, but I'm a little crosseyed at this point. TLDR Fib time frames say the 62% crash isn't projected to come for a few years.
CONCLUSION
Using Price levels, GDP, and Fibonacci, the next crash could bottom out at one the following levels:
The thing that worries me is how every indicator is saying about the same thing. They're all way down there: 2000, give or take. I don't have any info on when it'll happen, but if we start seeing lower highs and lower lows, hopefully this gives you an idea of where we could end up.
Good luck. Trade smart.
PRICE CHANNELS
Uptrend
We're in an uptrend price channel from 1937 to now, and we're currently at the top of that channel.
We also have a channel created by the 2000 and 2008 crashes. We've broken out of the channel, but that means the trendline connecting the two peaks provides strong resistance at 1700-1800. Hmm, that's in line with the uptrend. Interesting.
BUFFET INDICATOR
Ok, here's a bad explanation of the Buffett Indicator. The GDP is the sum of all outputs from every US company. The value of each individual company is captured in their stock price. So the sum of all stock prices should equal the GDP, or at least be a consistent percentage of it, IndexPrice / GDP. I believe this is normally done with the Russel 5000, but I'm going to estimate with the SPY. When the buffet indicator increases, things are overvalued. But not in the normal "the made up RSI calculation is over 80 b/c people have been consistently buying." No, it's literally, and by definition, overvalued; the aggregate stock price has been increasing higher than aggregate production. You can see the bubble pop when things spike high enough, although it's dangerous to try and time it. And the ratio is unbelievably high: 239%. Stocks are almost two and a half times more expensive than they should be. Biggest bubble ever by a standard deviation. This graph is terrifying.
Ideal Price:
1/2.39 = 42%
42% of 4500 is about 1900
Panic Bottom
.40/2.39 = 16.7%
16.7% of 4500 is about 750
We're so overvalued we could realistically panic all the way down to 750. It's not that that's too far of a drop to be realistic, it's that we're so so overpriced.
FIBONACCI
The rule of thumb is that a trend hasn't retraced until it's hit 50%. Since the 2008 crash, we haven't had a 50% retracement, so that's still the long-term swing low. If we were at the peak right now, the 62% retrace from the 2008 low would be 2150.
CONCLUSION
Using Price levels, GDP, and Fibonacci, the next crash could bottom out at one the following levels:
- 750 1360 1600 1700 1800 1800 1900 2000 2150 2250
Good luck. Trade smart.
Just realized something that could help us estimate when it will all happen. We have a max of our estimates, 2250, and a channel that intersects that price line, so there's a max date when we "could possibly" hit 2250: May 1st, 2026.
This also means that the estimates outside the channel - 750, 1360, 1600 - are invalid.
Just playing around, I did a couple different fib time start and end points, and here those are as the yellow vertical lines. The cluster of fib lines in July 2023 hit the bottom of the channel at 1850.