In a most optimistic scenario, the bull market has 1 year left

The S&P is still hovering around its 50% fibonacci retracement, which is a very important resistance. Meanwhile, the macro data is mixed. Some long term leading indicators are starting to turn long term bearish, while others have yet to do so.

Go here to understand our fundamentals-driven long term outlook.
Let’s determine the stock market’s most probable medium term direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day.

*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are blindly “guessing” the future.


With the government shutdown still continuing, Initial Claims data is one of the few leading indicators we have available right now.
Initial Claims just made a new low for this economic expansion and is now under 200,000. In the past, Initial Claims trended higher for months before a bear market and recession began.

The one big concern is that Initial Claims is very low right now. In fact, the only other time Initial Claims has been this low was in the late-1960s.

Here’s what happens next to the S&P when Initial Claims is under 200k

As you can see, all the historical cases are the same. The first time this happened in a previous economic expansion was November 1967. In that historical case, the S&P 500 had 1 more year until the bull market ended.

Hence, “1 more year left of the bull market” is the most optimistic case.
This is not yet a long term bearish sign for the stock market. But with Initial Claims so low, watch out for an upwards trend in the data. When the upwards trend begins, that’s when you get a long term bearish sign.


AAII is one of the more popular sentiment indicators out there. AAII Bears % (pessimism) has been above average for 18 of the past 20 weeks.

This is quite a long time for sustained pessimism.
Here are similar instances in the past, and what the S&P 500 did next.

Interestingly enough, the S&P tends to do ok over the next 1-2 weeks. This shows that the short term is extremely hard to predict. At any given point in time, there are always bullish and bearish short term factors that conflict with eachother.


One of the most notable things right now is the S&P 500’s clear risk-on and risk-off correlation with defensive sectors (XLU).

  1. When the S&P does well, XLU goes nowhere
  2. When the S&P goes nowhere, XLU does well.

Traditional technical analysis teaches us that this is a bad sign for the stock market.
Is it?

Here’s what happens next to the S&P when the S&P goes up more than 7% over the past 23 days, while XLU (utilities sector) falls.
*Data from 1998 – present

As you can see, this isn’t a strong consistently bearish factor for the stock market on any time frame. However, there is a slight bearish lean over the next 3 months. Pullback/retest?
This is worse for XLU than it is for the S&P 500

Emerging markets

After an absolutely aweful 2018, emerging markets are rallying. (2018 is a big lesson for value investors – never, ever buy something just because it is “cheap”. Many investors went into 2018 long emerging markets instead of the U.S., because “emerging markets are cheap”. Emerging markets got slaughtered compared to the U.S. stock market in 2018).
EEM (emerging markets ETF) is on the verge of breaking above its 200 dma for the first time in a long time.

How do these breakouts usually play out?
Here’s what happens next to EEM when it breaks out above its 200 dma for the first time in 7 months.

Even though the sample size is small, it seems that the breakout does continue for at least a little bit (1-2 weeks).
Here’s what happens next to the S&P

Not consistently bullish or bearish.
Click here for yesterday’s market study


Here is our discretionary market outlook:

  1. The U.S. stock market’s long term risk:reward is no longer bullish. This doesn’t necessarily mean that the bull market is over. We’re merely talking about long term risk:reward. Long term risk:reward is more important than trying to predict exact tops and bottoms.
  2. The medium term direction (i.e. next 3-6 months) is neutral. Some market studies are medium term bullish while others are medium term bearish
  3. The stock market’s short term has a bearish lean due to the large probability of a pullback/retestFocus on the medium-long term (and especially the long term) because the short term is extremely hard to predict.

Goldman Sachs’ Bull/Bear Indicator demonstrates that while the bull market’s top isn’t necessarily in, risk:reward does favor long term bears.

Our discretionary outlook is not a reflection of how we’re trading the markets right now. We trade based on our quantitative trading models.
Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.
Click here for more market studies