Stock market on January 26, 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. The Conference Board’s Leading Indicator is bullish for stocks
  2. The stock market’s sectors are performing as expected.
  3. Emerging markets will outperform the U.S. stock market

2 pm: the Conference Board’s Leading Indicator is bullish for stocks
The Conference Board’s Leading Economic Index is one of the best leading indicators for the U.S. economy and stock market. This indicator is usually EXTREMELY early. It can top years before the stock market’s bull market is over.
The Leading Indicator is making a new high right now. This means that this bull market still has a lot of room to run. Here’s the Leading Indicator.

* Based on current data, the Medium-Long Term Model predicts that this bull market has 2 years left.
4 am: the stock market’s sectors are performing as expected.
Here’s the year to date performance for the S&P 500’s sectors (using sector ETFs).

The stock market’s sectors are behaving as expected.

  1. Growth sectors (technology and consumer discretionary) are outperforming, as they usually do in the final few years of a bull market.
  2. Finance is outperforming, which is normal when interest rates rise.
  3. Energy is outperforming, which is normal when commodities are in a bull market.
  4. Interest rate sensitive sectors are underperforming (utilities and real estate), which is normal when interest rates rise.

4 am: emerging markets will outperform the U.S. stock market
The U.S. dollar’s bear market is a cause for emerging markets’ outperformance.

  1. Foreign investors in U.S. stocks lose money when the USD goes down and they convert those U.S. stocks into their own currencies.
  2. American investors in foreign stocks earn money when the USD goes down and they convert those foreign stocks into USD.

Hence, many investors are buying foreign stocks as a way to diversify away from the U.S. dollar. This is one of the reasons why I expect emerging markets to outperform U.S. stocks over the next 2 years. The U.S. Dollar Index is in the midst of a multi-year bear market.
Read Stock market on January 25, 2018.

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.

24 comments add yours

  1. Troy, from the land down under. maybe the trump speech at dovos, and the triple top on es around 2854, could be a precursor for a 3% pullback… just “tested” a es short on the triple top. Noticed, a pattern that whenever trump speaks, the market is usually. Good for a very small 5-point pullin or a little more

  2. Troy, if you had not already purchased UPRO in September, would you initiate a position today?

      • I was wondering the same thing. Would you wait until after a market correction to initiate a position?

      • Does that mean you would wait for the correction?
        I think there are many people including myself haven’t jump in the market in Sept but don’t want to miss out this rally. What strategy would you recommend? Would it be wise to split it up? Say if I have 100k to invest, invest 10k every week to mitigate the risk of having a correction?

        • There’s 2 equally attractive routes to take:
          1. Invest 1/2 now, and wait for the correction with the other half
          2. Wait for the correction on 100% cash

    • That’s a tricky question. Not really. This is just a guess, but I think Europe’s performance will be mostly in line with that of the U.S.

  3. Troy, I see you closed out your AAPL short. There’s a lot of negative analyst sentiment towards Apple over the past month. Would you advise against holding call options through earnings? I have mostly leaps, $180,$185,$190 and some April $180s bought on the way down last few days. Thanks.

  4. Lol. With all the chasers comments wanting to “get in” after the super massive rally. These comments are a sign of a small correction coming.

  5. Troy,
    Can u share your thoughts, outlook, and testimonials about why u doubt the passage of an infrastructure plan being approved. Thank you

  6. Troy, if u doubt the passage of the infrastructure bill being approved, then what will be the next catalyst to rally the market? , the continuing massive corporate quarterly earnings with the new lower tax rate contributing to massive profits??

    • The stock market doesn’t need a reason to rally. It needs a reason to fall. No news is good news as long as the economy and corporate earnings grow.

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