Unexpectedly Intriguing!
November 30, 2020

2020's Thanksgiving holiday-shortened trading week came and went, leaving the S&P 500 (Index: SPX) sitting atop a new record high for the index before disappearing into market history.

For those who checked out early for the holiday, we'll repeat how we closed the previous edition of the S&P 500 chaos series, since it helps explain this week's update to the alternative futures chart.

On a final note, sharp-eyed readers will note that over the projected future of next two weeks, the alternative futures chart is showing a relatively short duration "echo" of the volatility that struck the market about a month ago. This is an artifact from the model's use of historic stock prices in setting the base reference points from which it projects the future. For longer duration events, we will often add a redzone forecast range to account for the echo effect, but since this upcoming echo is comparatively short, we'll simply note that the trajectory of the S&P 500 will likely appear to "run hot" with respect to the model's projections over these weeks.

Here is this week's alternative futures chart, which shows what running hot looks like in the context of what we just described.

Alternative Futures - S&P 500 - 2020Q4 - Standard Model (m=+1.5 from 22 September 2020) - Snapshot on 27 Nov 2020

Although we're not adding a redzone forecast to the chart, all that exercise involves is connecting the dots of the projected forecast for a given future quarter investors are focusing upon from a point before the echo effect skews the projection to a more distant point in the future after the echoes of past stock price volatility have dissipated. If we were to add one, we would start by assuming investors would remain focused on 2021-Q3 and connect points for this alternative trajectory on opposite sides of the echo. We would then indicate a range of plus-or-minus three percent of the value of the index to account for typical day-to-day trading volatility.

The current echo, which traces back to the volatility of a month earlier, will run out before the end of this week. But since you now know how that particular magic works, we'll leave it as an exercise for you to either amaze or dismay your friends by making your own redzone forecast with one of our spaghetti forecast charts!

Monday, 23 November 2020
Tuesday, 24 November 2020
Wednesday, 25 November 2020
Friday, 27 November 2020

A succinct summary of the positives and negatives Barry Ritholtz found in the holiday-shortened trading week's economics and markets news is available over at The Big Picture.

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