Stocks on July 24, 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 continues to hold onto its new breakout range.
  2. The stock market’s breadth is NOT weak.
  3. China doesn’t plan to “weaponize” the Yuan to hurt the U.S. in this trade war.
  4. Yardeni’s leading indicator confirms the S&P 500’s rally.

Read Study: Chinese Yuan’s depreciation is not bearish for the U.S. stock market.
Read Introducing my new stock picking strategy and portfolio
1 am: The S&P 500 continues to hold on its new breakout range.
The S&P 500 recently broke out above its previous range.

Some people are looking for the S&P to breakdown back into its previous range. This seems increasingly difficult with this strong earnings season. Earnings are crushing it.
With the S&P turning its previous resistance into support, I expect it to make new highs by the end of August.
1 am: The stock market’s breadth is NOT weak.
Not a day goes by in which some financial “guru” states that the S&P 500’s breadth is “weak” because “only 61% of companies are trading above their 200 daily moving average”.
This is silly. “The % of companies above their 200 dma” is a USELESS indicator. Based on this indicator, breadth is always “strong” when the S&P is going up and breadth is always “weak” when the stock market is below all-time highs. There’s no “broad participation” in the stock market’s rally right now because the S&P is not far from its 200 daily moving average.

This indicator has no predictive power.
1 am: China doesn’t plan to “weaponize” the Yuan to hurt the U.S. in this trade war.
As we’ve explained repeatedly, China is losing this trade war because it has the weaker hand. The U.S. is a net importer while China is a net exporter.
Some in the financial media thought that China would purposely devalue its currency to hit back at the U.S. in this trade war. That prediction has now been debunked.
From Reuters: China says that it has no intention to devalue its currency in this trade war.
In contrast, China wants its currency to APPRECIATE because it wants to make the Yuan an alternative reserve currency vs the U.S. Dollar. In other words, China’s long term financial goal is for the Yuan to appreciate, not depreciate.
The Yuan’s recent devaluation is due to market forces, not the Chinese government’s intervention. Depreciating the Yuan doesn’t really help China’s exports. The Chinese Yuan tanked in 2015-2016. Chinese exports to the U.S. didn’t increase.
1 am: Yardeni’s leading indicator confirms the S&P 500’s rally.
Ed Yardeni publishes a pretty interesting leading indicator for the stock market: it’s the average of the Consumer Comfort Index and CRB raw industrials index divided by weekly Initial Claims.


As you can see, the stock market doesn’t always go down when Yardeni’s leading indicator falls. But the stock market always goes up when Yardeni’s leading indicator swings sideways or goes up.
This leading indicator is trending slightly upwards right now, so it’s a medium-long term bullish sign for the stock market.
Read Stocks on July 23, 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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