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MRCI's Scenario Examples

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Scenario Analysis

Welcome to a new feature of both the monthly report and of MRCI's Web site, http://www.mrci.com. We have introduced you to the ScenarioSM decision-logic technology with our specific case studies on each month's "Futures Highlight".

Though each case is studied in depth, it is limited to a single contract. The ScenarioSM Monthly Summary presents the results of performing individual case studies across the spectrum of markets and selecting those whose subsequent market behavior has been historically reliable. (Note: the ScenarioSM Monthly Summary is filtered to those markets which have had an 84% or higher historical follow through.)

Underlying Concept

The thrust of the research is to give traders a longer-term perspective on markets, to help them see the "forest for the trees," if you will. Distilled to its essence, the technology searches for markets that have exhibited a reliable tendency to follow through after a higher/lower monthly close for a given month.

What do we mean by follow through? If the market's monthly close is higher than the previous month, subsequent market action within the next two months should exceed at least the high of the month with the higher close. Thus, beginning on the first of each month traders have a minimum objective, often a substantial distance from the month-end close, on which history suggests they can have a high degree of confidence the market will meet, at least before a major reversal in trend. Further, by normalizing those previous occurrences on which the study is based, an average objective, usually an even more substantial distance from the month-end close, can be projected.

Examples

Absent a more complete explanation, let the two examples below suggest how someone could read the summary table on the following page - and the possible conclusions that could reasonably be drawn. As always, this is not to predict but to let the statistics speak for themselves.

Examples from the ScenarioSM Monthly

Historical Data Scenario Data

Mkt

Cond

Month
Prev
Close
Month
High
Month
Low
Month
Close
Pct
Range
Total
Years
Cond
Years
Action
Years

Pct
Scenario
Objective
Average
Objective
#DJ Higher Feb 6813.00 7074.00 6710.00 6878.00 46% 45 25 24 96% 7074.00 7480.83

#DJ - Dow Jones Industrial Index

The Dow Industrials (Mkt) ended higher (Cond) for February (Month). Compared to January's 6813 (Prev Close), the market ended February at 6878 (Month Close), that being 46% (Pct Range) of the range from 6710 (Month Low) to 7074 (Month High).

Comparing January/February closes for each of the last 45 years (Total Years studied), Scenario found the DJI had closed higher in February than January in 25 (Cond Years) of those years. Of those 25, the DJI subsequently exceeded February's high within the next two months in 24 years (Action Years), or 96% ( Pct) of the time.

Therefore, the historical odds are high for the DJI to exceed 7074 (Scenario Objective) by no later than the end of April. If it does so, Scenario would further project a potential move toward 7480.83 (the Average Objective, derived by normalizing subsequent market action in those 24 previous years). (Note: Historical studies suggest that the extreme price is often reached approximately 5 weeks into the Scenario period.)

SPM7 Higher Feb 794.90 827.80 778.00 797.90 40% 14 11 9 82% 827.80 866.74

SPM - June S&P 500

The June S&P (Mkt) ended higher (Cond) for February (Month). Compared to January's 794.90 (Prev Close), the market ended February at 797.90 (Month Close), that being 40% (Pct Range) of the range from 778.00 (Month Low) to 827.80 (Month High).

Comparing January/February closes for each of the last 14 years (Total Years studied), Scenario found that the June S&P had closed higher in February than January in 11 ( Cond Years) of those years. Of those 11, the contract subsequently exceeded February's high within the next two month's in 9 years(Action Years), 82% (Pct) of the time.

Therefore, historical odds are high for the June S&P to exceed 827.80 (Scenario Objective) by no later than the end of April. If it does so, Scenario would further project a potential move toward 866.74 (the Average Objective, derived by normalizing subsequent market action in those previous 9 years).

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Newsflash

Will the stock market continue its tradition of rallying into the new year?  Will there be another "Santa Claus rally?"

After a frightening decline after Brexit and another overnight in an initial response to Donald Trump's election upset, several US stock indices returned toward their all-time highs --- although some international markets are lagging.  Does that provide incredible opportunity?  But which way and when?

MRCI's  Historical Indices Report, complete with seasonal patterns not only for US futures on S&P500, S&P MidCap 400, NASDAQ 100, Russe ll 2000, and DJIA but also for futures on several major international indices including the FT-SE 100, CAC 40, Nikkei 225, DAX, Euro STOXX 50, Swiss Market Index, SPI 200, and Hang Seng Index.