Will the equity markets rise further in 2018?

Ron William from RW Advisory tells IGTV that while he is happy remaining long on the S&P 500 going into 2018, he is watching out for a reversal. William also looks at the charts of Facebook and IBM. 

2017 was forecast by some to be a tough year for equities, but the S&P 500 has hit around 70 record highs this year. So has the pull back been pushed into 2018?

The seventh year of each decade, according to Ron William, founder and principal market strategist of RW Advisory, is on average a bad year, and seasonally the fourth quarter tends to be the worst. Neither of these expectations came to pass, and the market overcoming this pessimism is itself a bull signal.

However, the longer the upward run extends without a correction and with volatility clinging to historic lows, the greater the downside risk becomes, he tells IGTV.

S&P 500 Fragility

The S&P 500 is testing an 8-year resistance level and struggling to breach it, William said, warning there is a negative phase of a major timing cycle coming in the New Year. If the S&P 500 stumbles at 2450 he suggested it would bottom out at 2075.

S&P 500 chart

He said he would be long on S&P 500 but with tight stops.

FANGs faltering 

Facebook, Amazon, Netflix and Google, the so-called FANGs who are behind much of the climb in the wider US stock indices, could signal fragility if one falters.

Facebook chart

Facebook, like the other FANGs, has been on a bullet proof upward trajectory, but is testing a 6-year resistance level of $180, William noted. If it climbs past the psychological $200 level, that would be very positive. But if it failed to hold at $180 and slipped through $158 this could be a signal for a wider correction. It is a case of the higher they climb the harder they fall, and the cycle is suggesting a correction early in 2018. If divergence falls below 62 that would be hailing a bear market.

IBM – price breaking with fundamentals

IBM could be described as old tech. Its price has dipped since a 2012 peak, but William suggests this may be a case of fundamentals not being reflected in the share price. However he explained how if the downward trend continued it could be a shorting opportunity.

IBM chart

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