SPY (S&p 500 Index) Trying to Hone in on Fair Value?
I was playing around with pitchforks on the weekly timeframe for SPY and noticed that the uptrend slope (as determined by the slope of the pitchfork median line) has consistently decreased: from 47 degrees in the "internet bubble" bull market of the 90's, to 33 degrees in the recovery (leading up to the 2007 financial crisis), to 28 degrees in this latest bull run up from the aforementioned recession. There is a strong power relationship between these three data points, with an R-squared value of 0.9966 (and, yes, I do understand that this is a ridiculously small sample size), suggesting that the next bull run (after the next recession...that might have already happened?) will produce a trendline slope of around 24 degrees.
Now, the actual value of these slopes will change, depending on how far in or out you zoom into the chart (which explains why the values are different on the chart that I've uploaded), but they will always change proportionately to maintain a consistent difference in value, such that the R-squared value and, therefore, the value determined by the equation will still be valid.
One way to interpret this (and I'm in no way suggesting that it is the most accurate way) is that it's slowly honing in on a fair "future market" value, wherein the slope will eventually be near zero, at which point the fair value will have been determined, the formation of market bubbles will have virtually been eliminated, and the price volatility will be virtually non-existent.
Of course, it's a bit foolish to think that three data points will accurately project out decades and centuries into the future, regardless of how neatly they fit into a mathematical equation. It may, however, be a useful bit of insight into the next market cycle, whenever that happens to take place (might have already started?).
The power equation that I've applied here is:
f(x) = 46.697x^-0.476
where x = the number of market cycles since before the "internet bubble" market cycle (internet bubble = x = 1; recovery from internet bubble pop = x = 2; etc)
Now, the actual value of these slopes will change, depending on how far in or out you zoom into the chart (which explains why the values are different on the chart that I've uploaded), but they will always change proportionately to maintain a consistent difference in value, such that the R-squared value and, therefore, the value determined by the equation will still be valid.
One way to interpret this (and I'm in no way suggesting that it is the most accurate way) is that it's slowly honing in on a fair "future market" value, wherein the slope will eventually be near zero, at which point the fair value will have been determined, the formation of market bubbles will have virtually been eliminated, and the price volatility will be virtually non-existent.
Of course, it's a bit foolish to think that three data points will accurately project out decades and centuries into the future, regardless of how neatly they fit into a mathematical equation. It may, however, be a useful bit of insight into the next market cycle, whenever that happens to take place (might have already started?).
The power equation that I've applied here is:
f(x) = 46.697x^-0.476
where x = the number of market cycles since before the "internet bubble" market cycle (internet bubble = x = 1; recovery from internet bubble pop = x = 2; etc)