Stocks on July 19, 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. Stock market sentiment surged last week, Not as bearish as you think.
  2. The stock market is reacting in a positive manner to earnings season.
  3. Housing Starts fell a little but are still trending higher. Medium-long term bullish for the stock market and economy.
  4. Building Permits fell a little but are still trending higher. Medium-long term bullish for the stock market.

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1 am: Stock market sentiment surged last week, Not as bearish as you think.
The latest reading for AAII bulls (43.1%) surged from its previous reading.

This isn’t as bearish as you think. AAII Bulls are barely above their long term average right now.

1 am: the stock market is reacting in a positive manner to earnings season
Some results for Q2 2018 earnings season have been released already. So far, companies that missed expectations have witnessed larger stock price declines, but companies that beat expectations have witnessed larger stock price increases.


And remember: the majority of stocks ALWAYS beat earnings expectations (results in blue, expectations in grey).

This means that at the very least, the stock market probably will not go down this earnings season. At best, it will go up and push the S&P 500 to new highs.
1 am: Housing Starts fell a little but are still trending higher. Medium-long term bullish for the stock market and economy.
The latest reading for Housing Starts fell from its previous reading, which was an all-time high for this economic expansion. However, the key point is that Housing Starts are still trending higher.

The economy and stock market move in the same direction over the long run. Housing is a leading indicator for the U.S. economy. Hence, an improving Housing Starts is a medium-long term bullish sign for the U.S. economy and stock market.

This chart demonstrates how Housing Starts leads the S&P 500.

1 am: Building Permits fell a little but are still trending higher. Medium-long term bullish for the stock market.
The latest reading for Building Permits fell a little.

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 July 18, 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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