Stocks on August 6, 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. We’ve exited the “blackout” period for stocks buybacks, which will be bullish for the stock market this month
  2. China’s “crashing” stock market is not a bearish factor for the U.S. stock market
  3. Auto sales are rolling over, which suggests that this bull market probably only has 1 year left.
  4. COT sentiment data is bullish on the Japanese Yen, bullish on the Australian dollar, bullish on the New Zealand dollar, and bullish on the Swiss Franc.

Read Study: Wilshire 5000 already made a new high. Bullish for stocks
Read Study: the S&P has gone up 5 weeks in a row. Doesn’t mean a pullback will ensue
Read Study: gold is falling right now, but don’t get too bullish
1 am: We’ve exited the “blackout” period for stocks buybacks, which will be bullish for the stock market this month
As we’ve shown repeatedly over the past few months, corporate buybacks are surging this year. This is a bullish factor for the stock market in the medium term (more buyers for stocks).
Under SEC rules, companies are required to pause stock buybacks approximately 5 weeks (1 month) before they release their earnings reports.
Of course not all companies release their earnings reports on the same day. But since most companies do release their earnings during “earnings season” months (January, April, July, October), these months are also typically blackout months.
This chart demonstrates how corporate buybacks tend to fluctuate throughout the year.

As you can see, July typically does not see a lot of corporate share buybacks because it is a blackout month. However, August usually experiences the largest % of share buybacks.
Now that we are in August, the renewed vigor in share buybacks could push the S&P 500 to new highs by the end of this month. The S&P is already very close to new highs.

1 am: China’s “crashing” stock market is not a bearish factor for the U.S. stock market
The Chinese stock market has fallen significantly this year due to Trump’s trade war. This has investors worried about that China’s stock market crash will lead to “contagion in the U.S.”


I don’t think China’s “crashing” stock market is a bearish factor for the U.S. stock market. With the U.S. economy experiencing 4%+ GDP growth, we have not seen any economic contagion from China to the U.S. Moreover, it’s perfectly normal for the Chinese stock market to go down while the U.S. stock market rises.

It is not unusual for the U.S. and Chinese stock markets to move in different directions on a 3 month rolling basis.

1 am: Auto sales are rolling over, which suggests that this bull market does have many years left.
As I’ve said before, big ticket purchases are usually the first to peak/deteriorate during a bull market and economic expansion. Then Initial Claims starts to deteriorate. Then the stock market tops. And finally the economy enters into a recession.

The latest reading for Total Vehicle Sales demonstrates that this economic indicator continues to trend sideways.

With Total Vehicle Sales trending sideways, Initial Claims will probably bottom sometime later  this year or in the first half of 2019. The stock market usually tops half a year after Initial Claims bottoms.
1 am: COT sentiment data is bullish on the Japanese Yen, bullish on the Australian dollar, bullish on the New Zealand dollar, and bullish on the Swiss Franc.
COT data is the most popular sentiment indicator for commodities and currencies.
The current COT data is slightly bullish for the Japanese Yen

The current COT data is bullish for the Australian dollar.

The current COT data is bullish for the New Zealand dollar.

The current COT data is bullish for the Swiss Franc

Read Stocks on August 4, 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.

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