Stocks on July 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.
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. The Equities Put/Call Ratio spiked to 0.74. Suggests that the stock market’s short term downside is limited.
  2. An avalanche of stock buybacks are putting a floor under the stock market.
  3. JOLTS fell a little but are still trending higher. Bullish for stocks

1 am: The Equities Put/Call Ratio spiked to 0.74. Suggests that the stock market’s short term downside is limited.
The Equities Put/Call Ratio spiked yesterday to 0.74. With the S&P futures falling on Trump’s additional $200 billion in tariffs, the Put/Call Ratio will surely spike even more today.

The last 3 times this happened, the stock market had either already made a short term bottom or was close to making a short term bottom. This suggests that the stock market’s short term downside is limited.
1 am: An avalanche of stock buybacks are putting a floor under the stock market.
Here’s an interesting post from Zerohedge:

At the start of the year, JPMorgan made a daring forecast: it predicted that buybacks in 2018 would hit a record $842 billion, a number that would put any prior year’s total to shame. It also meant that as corporations themselves emerged as the biggest buyer of stocks in 2018, it would require an avalanche of selling to push the market lower.


And so far this is exactly what has happened: massive corporate buybacks have prevented the stock market from falling significantly in 2018. So who’s selling?
Institutions and hedge funds.

And here’s the thing. Institutions and hedge funds are not “smart money”. The average hedge fund underperforms buy and hold. They are dumb money because they consistently “anticipate” the next crash, even though crashes are few and far between. And when crashes do come, hedge funds don’t do much better than buy and hold either. The average hedge fund still got clobbered in 2008, just less so than investors who buy and hold.
I expect stock buybacks to continue to put a floor under the stock market throughout 2018.
Permabears love to state that “stock buybacks are evil because they destroy shareholder value”. Here’s the thing. This is an old argument that has lasted 30+ years. And over the past 30 years, stock buybacks have neither destroyed the stock market nor the economy.
Here’s an article from the NYTimes from 30 years ago detailing why stock buybacks are “evil”. In reality, stock buybacks are neither “good” nor “bad” from an ethical point of view. Corporations have as much right to play the market as individual investors and traders do.
1 am: JOLTS fell a little but are still trending higher. Bullish for stocks.
The latest reading for Job Openings fell 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 July 10, 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 1-2 years 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.

1 comment add yours

Leave a Comment