We have a measure that we apply to the market that measures what we call “Fed Confidence”. In a sense it is both a measure of how confident the Fed is in what they are doing and a measure of the level of confidence that investors have in the market at any point in time.
In the current context, our premise is that the FED’s QE III was overkill and has resulted in a Macro Market Event that is out of sync with the Macro Economic environment. At the moment the Confidence level remains relatively high. What this means is that if something disturbs the market environment, the risk is that there is a long way down in this market.
What we believe will occur over the next three years, probably sooner rather than later, is that the stock market measured by the S&P 500 will revert to the levels following the end of QE II and before QE III (some call QE Infinity). That range of S&P prices is 1074 to 1422, with a swing point of 1248. These levels are respectfully down 30 to 53 percent from the recent all time high.