S&P 500 Path Analysis

The Fed just told us that its policy was at appropriate level and that there was no bias for hike or cut. Personally I think this is rather good news but the short term reaction as been for a small sell off. I guess any excuse is good for short term players to sell the relief rally that occurred in Q1…I am still looking for a clean break of 3000….

The below chart shows the S&P 500 cumulative return over the period January 1985 to May 2019 .At Close of business 01 May 2019 it was trading at 2923.

plot of chunk chartdata

In the below I plot the previous 125 days against other similar historical periods that would have closely matched the recent history. The data has been normalised so as to be on the same scale. The chart shows the latest 125 days in black, and overlay similar historical patterns in grey. It Also shows what has been the price path for the following 125 days as well as the observed quartiles.

plot of chunk pattern

Finally I plot the last 125 days and a trend forecast derived from an ARIMA(2,1,3) model as well as the 95% confidence intervals. The ARIMA model is fitted to the past 625 historical values whilst ignoring the last 125 days, therefore we can look at the recent price path against the trend forecast and its confidence intervals to gauge how (a)typical the recent move has been.

plot of chunk arimaplot