CYCLICAL BULL MARKET TARGETS

BOLLINGER BAND TARGET FOR S&P 500... One of the ways to arrive at an upside target for a market advance is by applying Bollinger Bands to monthly charts. Chart 1 plots monthly Bollinger Bands for the last seven years over the S&P 500. Chart 1 shows that the S&P 500 is now trading safely above the middle line. That implies an upside target to the upper band (which presently sits near 1140). That's approximately 11% above the current level. Keep in mind, however, that the upper is dropping in value each month. The fact that the monthly MACD lines are positive increases the odds that the upper band will probably be reached. Chart 2 plots Fibonnaci retracements from the high to the low during the recent bear trend. A 38% retracement is near 1140 level (which matches the upper Bollinger band). A 50% retracement sits at 1180, which is closer to the top of the bear market bounce that took place from the fourth quarter of 2001 into the spring of 2002. That puts the upside target for the S&P 500 in the 1140-1180 region.

Chart 1

Chart 2

AVERAGE CYCLICAL BULLS... I happen to believe that the market is in the midst of a "cyclical" bull market as opposed to a "secular" bull. On average, cyclical bull markets can rally 50% off their lowest low and average a year in length. Using that criteria, a 50% recovery off last October's low at 768.60 yields an upside target to 1152. That's within the target range shown in Charts 1 and 2. The average length of a bull market (one year) would carry it at least into October. Lastly, there's the upside measurement from the "head and shoulders" bottom. That measures to 1140. That's approximately 10% over where we are now. That also coincides with the bottom of the 1140-1180 target zone. From a seasonal standpoint, September and the first half of October are traditionally a period of weakness. If the market can get through that difficult period, seasonal factors turn favorable until January. My upside target for the Nasdaq Composite is to 2000-2100 vicinity as shown in Chart 4.

Chart 3

Chart 4