Market Forecasting Software: Expect The S&P, Dow Jones, And Russell Indexes To Regain More Of Last Week's Losses

The S&P 500 is coming off its best quarter in five years, but that didn’t stop the market from opening Q4 by having it’s most volatile week since February.

Last week was obviously a tough one for investors, but the major indices appear to have bounced back in the last few days. The S&P 500, for example, has already recovered about half of last week’s losses.

And according to VantagePoint Software, an artificial intelligence and intermarket analysis platform that makes 1-3 day forecasts accurate up to 86 percent of the time, we compared the three of the largest indexes in the U.S. stock market, the Dow Jones, S&P 500, and Russell 2000, to see what their recent moves can tell us about the future.

Dow Jones Industrial Average

The Dow Jones, or Dow 30, is the second-oldest stock market index on Wall Street, and is comprised of 30 large-cap stocks that are considered stalwarts of their industries. The Dow Jones is unique in that it’s price weighted, meaning a stock’s weighting in the index is determined by its share price as opposed to the company’s market cap.

Investors trade the Dow Jones using the SPDR Dow Jones Industrial Average ETF DIA. Looking at a chart of the “diamonds” below, we can see how the ETF had a bullish crossover yesterday.

Image courtesy of VantagePoint

There are two main things to notice on that chart above. The first is the blue line, which is a predicted moving average. As long as that stays above the black line, a simple 10-day moving average, that indicates the market is expected to move higher. A crossover of those lines would signal a bearish trend.

The second indicator is the neural index—the red/green bar at the bottom of the chart. That forecasts near-term strength or weakness.

In this case, both signals are pointing to continued upside in DIA.

S&P 500

The S&P 500 represents the 500 largest stocks by market cap traded in the U.S. There are several ETFs investors use to gain exposure to this index, but the main one is SPDR 500 ETF SPY.

Take a look at what VantagePoint is forecasting for the SPY going forward.

Image courtesy of VantagePoint

Obviously, this looks extremely similar to the DIA chart, down to the same bullish crossover yesterday. This tells us that, for the moment, the two are extremely correlated and can be expected to trade in lockstep with each other.

It’s not unusual for major indexes like this to exhibit a strong relationship like this. However, that doesn’t mean they’re always 100 percent correlated.

Russell 2000

The Russell 2000 represents the 2,000 largest U.S.-listed stocks. This index is actually preferred by many on Wall Street, due the propensity of small caps to outperform over the long-term.

That said, let’s take a look at the largest Russell 2000 ETF, the iShares Russell 2000 Index ETF IWM.

Image courtesy of VantagePoint

This is...not the same as the previous two. Sure, it had a bullish crossover on Tuesday, but look at the bearish trend that began in early September. Prior to last week’s broad market sell-off, the IWM had actually been dramatically weaker than the SPY and DIA.

So, what does all this tell us? First of all, we can expect the market and the major ETFs that track them to continue to move higher in the coming days. It’s beginning to look more and more like last week’s volatility was a “buy the dip” opportunity.

Vantagepoint Software is a content partner of Benzinga. For a free demo click here.