Stocks on August 8, 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. VIX has made a short term bottom. A short term bearish factor for the U.S. stock market.
  2. “In 2 weeks time, this will be the longest bull market in history”. This is not true
  3. Heavy Truck Sales are trending higher. Medium-long term bullish for stocks
  4. JOLTS went up a little but are still trending higher. Bullish for stocks.

Read Study: VIX’s collapse is bullish for the stock market
1 am: VIX has made a short term bottom. A short term bearish factor for the U.S. stock market.
VIX has been getting crushed lately and is now below its 2 standard deviation Bollinger Band.

When this happens:

  1. VIX usually makes a short term bottom. So if you want to go long VIX, now is probably the time to do it.
  2. The stock market faces a bit of short term weakness (i.e. over the next 1-2 weeks). This “weakness” can take the form of a sideways consolidation or a pullback.

1 am: “In 2 weeks time, this will be the longest bull market in history”. This is not true
One of the silliest false narratives is “in 2 weeks time, the current bull market will be the longest one in history”.
For starters, bull markets don’t die of old age. Over the past 100 years bull markets have lasted longer and longer simply because economic expansions have lasted longer and longer.
More importantly, this “record bull market” is only a record based on a technicality. The conventional definition of a “bear market” is a 20% decline from the top to bottom using daily CLOSE prices. This makes no sense. There is nothing inherently different between a 19% decline (which supposedly isn’t a “bear market”) and a 21% decline (which supposedly is a “bear market”).
The S&P 500 did fall more than 20% in 2011: it fell 21% using daily HIGH and LOW prices but fell 19% using CLOSE prices. In essence, this “bull market” based on conventional definitions hasn’t lasted 9 years. It’s lasted 7 years.

We don’t use “20%” as the definition for “bear markets” in the Medium-Long Term Model. For us, these 20% declines are merely big corrections. “Bear markets” are the massive declines from 2007-2009, 2000-2002, 1973-1974, and 1968-1970 (as defined by the Medium-Long Term Model).
1 am: Heavy Truck Sales are trending higher. Medium-long term bullish for stocks
The latest reading for Heavy Truck Sales went up from 461k to 485k. But more importantly, Heavy Truck Sales are still trending higher.

This is a medium-long term bullish sign for the stock market. Historically, Heavy Truck Sales trended downwards before bear markets and economic recessions began.
1 am: JOLTS went up a little but are still trending higher. Bullish for stocks.
The latest reading for Job Openings went up a little from its previous reading. But more importantly, Job Openings are still trending higher.

This confirms the medium-long term bullish sign in Initial and Continued Claims. JOLTS is a leading indicator for the stock market and economy. This chart demonstrates the positive correlation between JOLTS and the S&P 500. An uptrend in JOLTS = an uptrend in the S&P 500.

Read Stocks on August 7, 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.

2 comments add yours

  1. Hi Troy. As this year began, you indicated that your model was looking for two small corrections this year. At the present time, is it still looking for a second small correction this year? If yes, is there a window for it to occur? Thanks for the update.

    • Hi Mel,
      The “2 small corrections” prediction was more based on “the stock market will be volatile in 2018”. It was not based on the Medium-Long Term Model. My original case was that the S&P would make a correction in the first half of 2018, followed by a new high, and then a second correction in the second half of 2018.
      Since the current correction has lasted so long, I don’t think there will be another small correction this year.

Leave a Reply to Troy Cancel