Constriction in $spx last week. What’s next?

I was expecting markets to reach 1413.nn-1423.nn ESU12 on Friday (+3.25 for $spx). I was befuddled by the results from Smartp as it does produce good intraweek numbers that are hit most times.So I delved deeper into this “constriction” week in $spx last week.

And here is what I found,
– This was the 3rd such instance since 2/26/2007 (5+ years) where entire week’s range was less than 1.2% of weekly open
– In all 3 cases next week’s close was UP, and on an average it was up 1% or for next week $spx should close at or above 1418.nn $spx
– For the entire historical data since 1950 (that is what I have), there is 61% chance that $spx gets a BULLISH resolution on next week’s CLOSE. And average increase is 1% as well

Also, what is evident from the chart longer term is that constriction is a BULL wave phenomenon and clusters of constrictions seem to occur before historic BULL markets have taken off. The 2003 to 2007 leg seem like an anomaly to this but even in this case the first weekly constriction started in March 2003 the exact bottom of the rise.

ATTACHMENTS
081112 spx constriction.png
081112 spx constriction.png (68.68 KiB) Not viewed yet
Well, since we are looking ahead into November – I extended the model to 4 weeks out so let us say by 9/10/12 and then to 11/10/12.

Here are the results

This rare constriction last week is pointing to:

– 1448.61 by 9/10/12 with a 63.1% probability of upside with an average 3.05% gains based on history and,
– 1485.34 by 11/10/12 with a 67.7% probability of upside with an average 5.66% gains based on history

And for devil’s advocacy, downside suggested for flip side probabilities that are lower in 30%’s,
– Worst case 1372.05 by 9/10/12
– Worst case 1358.58 by 11/10/12

Or in a nutshell we will be in the 1358.58-1485.34 range until 11/10/12. So go write your straddles now 🙂

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chanakya
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