Bull market ahead?
As mentioned in looking forward to 2012, I have developed an economic fair value indicator which appears very useful for medium to long term time-frames in predicting the movement of the ASX index - as measured by the XJO (S&P500). Whilst it is not yet useful for absolute price targets, it appears to be exceptionally useful in determining the nature of the markets.
I have performed a more recent update of the economic data inputs that feed through to the fair value indicator and it is becoming very bullish. For the first time since 2007, fair value has clearly surpassed price and is currently sitting at a target of 5000. Based on the historical performance of this indicator, one can clearly see that 9500 was too high in 2005 - however it still was correct in calling the bull market. So until the data flows break down, it looks like the Aussie market could be in for a solid run upwards in 2012.
1 Year View
On a shorter-term basis, it is interesting to note how closely the change in the indicator matches market prices - even though no market data is incorporated in the indicator. This is something that I will look to analyse further, however one problem is that the data series lags market prices by up to one month - which is why the most recent figure on the indicator is flat, and is an area that will receive further attention and development.