Monday, January 7, 2013

Sell Your Stocks in May?

A Milestone: 

This is the 100th posting of Model T Stock Trends blog.  I never would have imaged writing that when the blog debuted in September 2009.  The blog continues to gain readers with over 2,100 hits in over 30 countries in December. This includes a strong following in the United Kingdom, which I greatly appreciate. Ironically this 100th post is the most important one so far.  So enough celebrating, there is some serious work to do!
A History: 

The Model T (short for Model Transportation) is designed to forecast major peaks (and timing) in the S&P 500 index based on various data from the commercial transportation industry.  It is similar to Dow Theory (in theory) but more precise.  I began building the model in 2000.  I started sharing the forecasts with investment professionals in the transportation industry in 2007.   The Model T gained some “Wall-Street Cred” when it was surprisingly accurate in predicting the market peak in October 2007.  For a more complete description of the Model T, please see: What is theModel T and How Does it Work. 

I started writing the blog to test and refine the model publicly.  Anyone can say they “predicted it” after the fact.  And because I’m not an economist, I’m a marketing analyst; I do not have to worry about harming my professional reputation. 

There have not been any major peaks for the Model T to predict since I started writing this blog, until now.  The peak and correction in 2011 were caused by issues in the financial markets and the Model T does not directly consider financial data. 

The Forecast: 

The Model T forecasts the S & P 500 Index will peak at 1550 this year.  Last May the Model T predicted a peak of 1480 occurring in January 2014.  Of course the economy has been weaker than expected and the stock market stronger than expected, so the model has recalibrated. 

The Model T was 2% too high is predicting the 2011 peak and 2% too low in 2012, so a 2% range equals 1520 to 1580 this year.  How does this compare to the “experts” predictions for 2013?

S&P 2013 High
Barclays PLC
Credit Suisse
S&P Capital IQ
Model T
Barron’s Survey Ave.
Goldman Sachs
BMO Cap. Mgmt.

Okay, I like the neighborhood and it looks like the Model T is consistent with some of the much more sophisticated models. 

The Timing 

But the Model T is designed to also forecast the timing of the peaks, so the forecast for 2013 goes like this: 

The S & P 500 Index will peak at around 1550 in May or June.  Often the market is strong for the first half of the years, and then slides the last half.  This forecast would be very consistent with that trend. 

The index will then bottom out between 1320 and 1350 (please note that the Model T has not been as accurate at forecasting market bottoms) 

The stock market will then begin a slow recovery and will finish the year around 1425 (vs.1426 at the beginning)   

Therefore 2013 will basically be a simple rollercoaster ride.  It will go higher, dip lower, but you will exit just about the place where you started. 

Due to the important implications of this forecast, I will issue updates as needed and as addendums when the blog posts are on other economic subjects.  Please bookmark the blog or subscribe (free) using the box at the upper right of the page so you can follow along. 

It is now time to buckle up and enjoy the ride!


  1. You are in good company with your forecast as I recently read a Merrill Lynch technical analysis that is very similar. ML adds that there could be a mini correction down in Feb. which could make sense fundamentally as the US politicians will begin to argue over the Debt Ceiling

  2. I have come to the same conclusion but using a different model. In my opinion we are in an epic 15 year head and shoulders formation. 1st Shoulder: tech bubble about 1520 peak, Head: housing bubble 1560's, 2nd shoulder Gov. debt bubble: peak prediction 1520's to 1550's because the prior housing head will not be breached. Low will be a retest in the 800's or maybe 666 will be tested. Or what ever it takes to make Boomers quit the market for good. 2017 to 2025+ should see Dow 30,000 from the money printing % post Iraq war boom.

  3. The market closed at 1551 today. Is this the peak or is another recalibration in order?

  4. The timing of the peak is more important that the S&P number. I publish the number because that is what people track and to have some measure that the model is reasonable. The more important factor is the month of May. The model has a 2% variance so 1580 may be possible. But be ready to bail in 7 weeks.

  5. I have a few Vanguard index funds(IRA's)-do you just recommend selling now and putting the proceeds into CD's?

    1. I am not a financial advisor. However, I am going to put the money I take out of the market in some short-term bond funds. This will allow me to get back into the market easily when the correction is over and the market begins to recover. If you go into CDs, you tie your money up and lose flexibility.

    2. Thanks. I've been with Vanguard for some time, though I think the Fed is going to keep feeding the kitty as long as unemployment stays over 6.5-7%. Short-term bonds seem like a reasonable alternative

  6. On September 23rd, 2009, you wrote: "But as you know the S&P has gained around 60% from its low point in March bringing the credibility of the Model into question. Almost all of the economists forecasting a lower number for the S&P have abandoned their forecasts and have been very quiet lately. The notable exception is David Rosenberg who is still forecasting a large market correction.

    The Model “T” now predicts a bottom at around 580. It would indicate that what we are experiencing is a huge 'bear-market rally'. So bulls beware!"

    In short, in 2009 the model predicted that there would be a second crash, with a bottom at 580, worse than the first. There was no specific time frame mentioned, however. What happened to that prediction of a bottom at 580? Has it been falsified or not?

  7. The Model T has not been as accurate forecast market bottoms as it has market tops. The model forecast a market bottom of 580 last time. I believe the bottom was 660, so it missed it. Several other more sophisticated models were also predicting a bottom in the 500 to 600 range and they also failed. Maybe the model failed due to the significant efforts the government took to stop the recession. If the economy was handled in a more free market way, the stock market would have gone lower. My model does not take into account these factors. Thank you for your interest.

  8. S&P = 1648.36 today. So much for the model T

  9. Hey, not dead yet. About two weeks left to go in my range. I will be addressing the performance of the model in late June.