Stock market on January 11, 2018: outlook


*These are my discretionary thoughts on the market. My Medium-Long Term model determines my trades.
Go to the homepage for my latest market outlook. I update this webpage throughout the day.

Thoughts

  1. A key leading indicator for the U.S. economy and stock market shows no signs of weakness.
  2. Expectations for this earnings season are rather high.
  3. Schedule for this earnings season.
  4. Tomorrow morning’s post will be extremely interesting: what happens when the S&P 500 is overbought on every single time frame.

Sorry for slowing down the writing guys. I’m hiring people to build this free tool for y’all. The blog posts will go back to 4 per day as of tomorrow.
3 pm: A key leading indicator for the economy and stock market shows no signs of weakness
U.S. Heavy Truck Sales continue to rise. This is a medium-long term bullish sign for the U.S. stock market and economy. Historically, Truck Sales almost always fall before a recession and bear market begins.

6 am: Expectations for this earnings season are rather high.
With earnings season about to begin, analysts are much more optimistic than usual. Analysts almost always cut EPS guidance, thereby allowing companies to easily “beat” their estimates.
Analysts cut EPS guidance by the lowest amount in 7 years for Q4 2017! In other words, analysts are extremely upbeat about the upcoming earnings season.


Here’s why Massive upwards earnings revisions aren’t a bearish sign.
Analysts are very upbeat for several reasons:

  1. Oil prices have surged this quarter. Hence, the energy sector’s EPS has increased 24.5%!
  2. Tech companies are crushing it. Tech is the biggest sector in the S&P 500. Moreover, an usually high number of tech companies have issued upwards EPS guidance. Revenues in tech are surging, so earnings in tech are surging as well.
  3. Earnings estimates for Q4 2017 surged when it became obvious that the Republicans would pass a tax cut.

I don’t know if the U.S. stock market as a whole will “beat” or “miss” estimates for this earnings season. Companies usually beat estimates, but this quarter’s bar is set rather high. Guessing is pointless.
The long term picture is simple. Corporate earnings will surge in 2018 as the U.S. and global economy continue to grow at a healthy rate. This is a medium-long term bullish factor for the U.S. and global stock markets.
6 am: Schedule for this earnings season.
Finance and tech earnings are the 2 key sectors to watch. Here’s the schedule.

  1. Friday, January 12: JPMorgan and Wells Fargo
  2. Tuesday, January 16: Citigroup
  3. Wednesday, January 17: Goldman Sachs, Bank of America
  4. Thursday, January 18: Morgan Stanley
  5. Monday, January 22: Netflix
  6. Wednesday, January 31: Facebook, Amazon, Microsoft
  7. Thursday, February 1: Apple, Google

Outlook

Here’s what I think will happen based on my discretionary outlook.

  1. The S&P will make a small 6%+ “small correction” in Q1 2018. The current rally is the longest one in history without a 6%+ “small correction”.
  2. The S&P 500 will close higher at the end of 2018 vs the beginning of 2018.

I do not use my discretionary outlook to trade. I remain 100% long UPRO because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets.
I have been 100% long UPRO since September 7, when the S&P was at 2465 and UPRO was at $109.3
*I also have a small Day Trading portfolio. Click here to view my day trades.

2 comments add yours

  1. Hello Troy
    I think SP500 will continue to rise until early february
    Nikkei looks like making a rising bearish wedge from last september low
    both SP500 and Nikkei will probably reach a tipping point in early february
    a correction is far overdue
    I think we must beware a bit significant correction during mid february and mid march
    kind regards

    • Hi Yokohama,
      I agree that a a correction in February is most likely (after earnings season). But I don’t see a significant correction. More like a “small correction” on the big side (i.e. 10% instead of 6%).
      Studies show that a V shaped bottom is more likely (think October 2014 $SPX)

Leave a Comment