Stocks on August 27, 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.
The economy and stock market move in the same direction in the medium-long term. Hence, leading economic indicators are also leading indicators for the stock market.

Thoughts

  1. High yield spreads continue to narrow. A medium-long term bullish sign for the stock market.
  2. Low levels of growth in margin debt suggests that the bull market still has room to run.
  3. New Home Sales fell a little but are still trending higher. A medium-long term bullish factor for the stock market.
  4. Building Permits are still trending higher. A medium-long term bullish factor for the stock market.

Read What’s next for stocks when the yield curve inverts
1 am: High yield spreads continue to narrow. A medium-long term bullish sign for the stock market.
High yield spreads have refused to trend upwards.

This is a medium-long term bullish sign for the stock market and suggests that the stock market will continue to trend higher in the medium-long term. Bond market participants are smarter than stock market participants, which is why the bond market is a leading indicator for the stock market. Historically, high yield spreads widen (trends higher) before a bull market tops.


1 am: Low levels of growth in margin debt suggests that the bull market still has room to run.
Margin debt continues to rise with the U.S. stock market.

However, the year-over-year % change in margin debt is more important. The % change tends to spike towards the end of an equities bull market. Without a spike, the current bull market will most likely continue.

1 am: New Home Sales fell a little but are still trending higher. A medium-long term bullish factor for the stock market.
New Home Sales’ latest reading went down from 638k to 627k. But more importantly, New Home Sales are still trending higher. This is a medium-long term bullish sign for the stock market.

*New Home Sales tend to fall for 1-2 years BEFORE the equities bull market ends. We are watching out for signs of sustained deterioration in New Home Sales. There have been none so far.


1 am: Building Permits are still trending higher. A medium-long term bullish factor for the stock market.
The latest reading for Building Permits went up a little (1292k to 1303k).

The more important fact is that Building Permits are still trending upwards.

Like Housing Starts, Building Permits is a leading indicator for the stock market and economy. The stock market trends higher when Building Permits are trending higher. The stock market enters into a bear market when Building Permits are trending lower.

Read Stocks on August 24, 2018: outlook

Outlook

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

  1. 2018 will trend higher but will also be a choppy year.
  2. The S&P 500 has approximately 1 year left in this bull market.

I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a big correction at this point in time. I ignore small corrections. I only sidestep big corrections and bear markets.
I have been long the S&P 500 since September 7, 2017 when it was at 2465.
*I also have a small Day Trading portfolio. Click here to view my day trades.

4 comments add yours

    • Hi Ray, I have closed all the positions. Changing the day trading model into a short term trading model that strictly trades UPRO

  1. Hi Troy,
    I just first want to say how much I appreciate your site. I’m amazed by your knowledge of the markets, especially considering how young you are. I had a question for you though. It seems like there’s a lot more information out there these days even compared to 2000 and 2007. This being the case, do you think it’s possible that this will have more of an impact on the markets that in the past? In other words, is it possible that with all the information that is out there that some of the so-called “dumb money” participants will turn into “smart money” traders and get out of the markets sooner than they normally would have. It just seems to me that with all these investment models out there and news about inverted yield curves, it’s possible that the market don’t get pushed as high as in past bull markets. I appreciate any thoughts you might have. Thank you for all your in-depth market analysis.

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