Range Bound Markets

With last Friday’s stronger than expected jobs report data, the benchmark S&P 500 index (“SPY”) closed above the notable 2,100 point level.

For those not keeping track, this was actually the 25th time in its history (see the red dots in the chart), since it first breached this level, back in February 2015. 

S&P 500 – February 1, 2015 to July 8, 2016

Source: VIP Wealth Solutions and Bloomberg

Data hounds will note that during this period, the SPY has never closed above 2,100 for more than 14 straight trading days, and in each period where the index crossed and closed above that level, the median number of days it was able to stay afloat above 2,100 was an average of just 3.2 trading days.

Over this 17 month period, this level has been quite a stubborn one for the markets. This is what market commentators label a “range bound market”. 

In what has been one of the longest bull market “pauses” on record, investors have been looking for a new S&P 500 all-time closing high for more than a year now.

No one knew it at the time, but the SPY last set its all-time closing high on May 21, 2015, when it closed at a record 2,130.82.

The next chart shows the five-year trading range chart of the S&P 500, which once again highlights this “range bound conundrum” for investors. 

For nearly two years now, the SPY has not been able to move solidly above these current levels.  The conventional thinking goes that the longer an index trades sideways, the stronger and longer the eventual breakout or breakdown will be, once it finally occurs.

S&P 500 – August 31, 2011 to June 30, 2016

Source: VIP Wealth Solutions and Bloomberg

So, with Friday’s close of 2129.90 for the SPY, this was less than 1 index point of breaking this record (just 0.05%).  So for the record, we think this record will be broken.

If you are bullish in your outlook for the markets, the potential is there for a nice leg higher, which establishes a range somewhere between 2,300 and 2,500.

Countering this, those in the bearish camps could see the SPY revisit its February lows at 1800.

Who is helping you manage these potential range of outcomes?

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