Stocks on July 20, 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. Dr. Copper is not sending a bearish sign for the stock market.
  2. The S&P 500 is starting to retest its breakout level.
  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 Study: monetary policy is still easy and accomodative for stocks
Read Study: don’t bet too much on an emerging markets bounce and USD pullback
2 am: Dr. Copper is not sending a bearish sign for the stock market.
Financial dogma believes that copper is capable of predicting economic recessions and major declines in the stock market. They believe that copper prices are a sign of economic health, which makes copper a leading indicator for the stock market and economy.
Except it isn’t. Copper has its own supply and demand, which doesn’t have much to do with the U.S. economy or U.S. stock market. In recent years, copper prices have been more closely tied to the Chinese economy and Chinese stock market than the U.S. economy and U.S. stock market.
As you can see in the following chart, copper prices fell consistently from 2011 to 2015 while the U.S. stock market soared and the U.S. economy improved. Copper is not an indicator for the U.S. stock market.

2 am: The S&P 500 is starting to retest its breakout level.
After breaking out recently, the S&P 500 is retesting its breakout level. Should this support hold, the S&P will probably revisit its January 2018 highs soon.

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 made a new low for this economic expansion (207k). 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 up a little from the previous week’s reading (1.751 million vs. 1.743 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 19, 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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