Stocks on July 13, 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 S&P 500’s chart is looking for a breakout.
  2. The stock market is rallying on “weak” volume. Not a bearish sign.
  3. Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
  4. Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

Read: The latest reading for inflation went up. Rising inflation is not bearish for stocks 
4 am: the S&P 500’s chart is looking for a breakout
The S&P 500 is bullish from a chartist’s perspective.

The S&P 500’s dips keep getting smaller and smaller, resulting in “lower lows”. Moreover, the S&P 500 is increasingly shrugging off the trade war news, which “should” be bearish for the market. When the market reacts to bearish news in a strong fashion, it’s a bullish sign.
Once the S&P breaks above 2800, the next obvious stop is at 2872 (the previous all-time high).
4 am: the stock market is rallying on weak volume, not a bearish sign.
The stock market’s trading volume has fallen since July began. This coincided with a stock market rally. Traditional technical analysis tells us that “a rally on low volume is bearish”. As I’ve demonstrated repeatedly, this isn’t true.
The stock market’s volume is falling because we’re in July, which means it’s the start of summer in the U.S.. Volume almost always falls during the summer because people are on vacation.

Here’s the S&P 500 in 2017. Notice how volume is lower during the summer, especially towards August.

Here’s the S&P 500 in 2016. Notice how volume is lower during the summer, especially towards August.

1 am: Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
Yesterday’s reading for Initial Claims went down from the previous week’s reading (214k vs 232k). The key point is that Initial Claims are still trending lower right now.

*Initial Claims lead the economy and stock market. Historically, its trends higher before a bear market in stocks started (see study).
We use Initial Claims data in these 2 trading models (here and here). These 2 trading models state that you should be long stocks right now because Initial Claims data is still trending downwards.
This suggests that the bull market in stocks is not over because Initial Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Initial Claims are very low right now (historically speaking). We are trying to catch the bull market’s top because the bull market most likely only has 1-2 years left.

This chart demonstrates the inverse correlation between the S&P 500 and Initial Claims. A downwards trending Initial Claims = medium-long term bullish for the stock market.

1 am: Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
Yesterday’s reading for Continued Claims went down a little from the previous week’s reading (1.739 million vs. 1.742 million). But the key point is that Continued Claims are still trending lower right now.

Like Initial Claims, Continued Claims lead the stock market and economy.
This suggests that the bull market in stocks is not over because Continued Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Continued Claims are very low right now (historically speaking). We are trying to catch the bull market’s top because the bull market most likely only has 1-2 years left.

This chart demonstrates the inverse correlation between the S&P 500 and Continued Claims. A downwards trending Continued Claims = medium-long term bullish for the stock market.

Read Stocks on July 12, 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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