Before getting into this year’s essay, it is worth noting that VectorVest isn’t interested in making predictions. However, we believe that Bull Market Scenarios prevail when forecasted earnings are rising and Bear Market Scenarios exist when forecasted earnings are falling. See my March 21, 2003 and March 28, 2003 essays on The Truth Chart and The Earnings Indicator.

When I wrote last year’s essay on the year ahead, the Earnings Trend Indicator, ETI, was 1.00. On the VectorVest scale of 0.00 – 2.00, above 1.00 is favorable, below 1.00 is unfavorable. So, I closed the essay by stating that, “ETI needs to go above 1.00 to signal a Bull Market Scenario. Until ETI does go above 1.00, the lackluster, choppy market we currently have will continue in The Year Ahead.”

Market Climate graph

Market Climate Graph, SP500 Earnings and Earnings Trend Indicator (ETI) 1/3/14-12/31/15

The earnings of petroleum stocks needed to recover for the S&P 500’s ETI to go above 1.00. So it was important to track petroleum’s EPS performance. I explained how one could do it by creating a separate WatchList of S&P 500 petroleum stocks. I called it S&P500 – ALL PETRO.

All Petro from Viewers tab

In my Earnings Update of July 29, 2016, I used an Average Graph of the S&P500 – ALL PETRO WatchList to report that its 50-Day MA of EPS had bottomed at -$1.42 per share on 05/05/2016 and was rising slowly at -$0.79 per share. The S&P500 – NO PETRO WatchList graph showed that its 50-Day MA of EPS bottomed at $4.43 per share on 03/30/2016 and was rising nicely at $4.78 per share.

The regular S&P500 WatchList graph showed that its 50-Day MA of EPS bottomed at $4.33 per share on 04/10/2016 and was rising nicely at $4.39 per share.

S&P500 WatchList Graph

1/2/15-1/3/17, SP500 Watchlist Graph, 50-Day MA EPS, 4/10/16 $4.33; 12/29/16 $4.72

S&P 500 No Petro graph

1/2/15-1/3/17, SP500 NO PETRO Watchlist Graph, 50-Day MA EPS, 3/30/16 $4.43: 12/29 5.00

S&P 500 All Petro graph

1/2/15-1/3/17, SP500 ALL PETRO Watchlist Graph, 50-Day MA EPS, 5/5/16 -$1.42: 12/29 $1.35

On July 29, 2016, I also reported that our Market Climate graph of S&P500 Earnings and S&P500 Earnings-VV indicated that ETI stood at 0.99 and looked to be on track to cross above 1.00 in one or two weeks. Sure enough, it hit 1.00 on August 5th and crossed above 1.00 on August 12th.

Market Climate graph

1/2/15-1/3/17, Market Climate Graph, ETI 8/12/16 1.00 and 1/3/17 1.12

As of December 29, 2016, the NO PETRO 50-Day MA of EPS stood at $5.00 per share and the S&P500 at $4.72 per share. With a $0.28 difference between the NO PETRO and the S&P500 50-Day MA of EPS, the deleterious effect the petroleum stocks had on S&P500 earnings has been largely mitigated. The ETI stood at 1.12, which is Bull Market territory.

With the S&P500 Index closing today at 2,239 and an earnings growth rate, GRT, of 7 %/yr., it is likely to close 2017 around 2,396. The average prediction of 14 Pros as reported in yesterday’s USA TODAY is 2,363.  Ironically, only 33 points separate VectorVest from the Pros. That’s it for The Year Ahead.

WatchList Average