Market Update 8.24.24

This week’s market performance closely mirrored our projections from last weekend. The predicted end-of-week prices for the DIA, SPY, and QQQ were remarkably accurate, reflecting the precision of our forecasting models.

As we look ahead, the market appears to be approaching a medium-term exhaustion point. Our model indicates a significant decline in the probability of positive returns, now falling below our nominal threshold of 63%. For the DIA, the probability of a positive return is a mere 45%, accompanied by 7-day predicted changes that come with wide standard deviations, extending into negative territory. Investors holding leveraged bullish positions should proceed with caution, as the market’s current dynamics suggest increased risk.

Model outputs as of market close on 8.23.24.

The chart above displays the predicted changes in selected market indexes, with whiskers representing one standard deviation. Notably, the 7-day standard deviations extend significantly into negative territory, suggesting that any "bad news" could trigger substantial market pullbacks next week. On the other hand, there's also a considerable potential for gains, as the upper whiskers indicate possible extensions into positive territory. As a result, our outlook on the market is neutral at this point—neither bullish nor bearish.

The bar chart above illustrates the probability of positive returns across different time horizons. Our model sets the nominal probability of positive returns at 63%. The probabilities shown in the chart fall significantly below this average, signaling an exhausted medium-term bullish market.