Stocks on July 5, 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.

Thoughts

  1. Global economic growth is slowing down. NOT bearish for the U.S. stock market
  2. The U.S. Dollar’s rally is mostly over. This is no longer a bearish factor for corporate earnings or the U.S. stock market.
  3. The bond market is still in “risk off” mode, which is medium-long term bullish for stocks

Read Study: financial conditions are still too easy for the bull market to end
Read Real Estate Investing Model: how to predict real estate prices
1 am: Global economic growth is slowing down. NOT bearish for the U.S. stock market
You’ve probably heard a lot of this recently:

Global economic growth is slowing down, which is bad for the U.S. stock market and U.S. economy. (Meanwhile, U.S. economic growth is still very strong).

For starters, perspective matters. Global economic growth is slowing, but it is still growing. All the major economies (U.S., China, Japan, EU) are growing.
In fact, economic spends half of its time “slowing down”. Short term fluctuations in economic growth are normal and don’t mean much.
But more importantly, global economic growth doesn’t matter that much for the U.S. stock market and U.S. economy. U.S. economic growth is much more important for the U.S. stock market. The U.S. economy is much less affected by global economic conditions than other countries.


As you can see, the U.S. economy suffers less during a global economic slowdown or trade war simply because it doesn’t rely on the global economy as much as other countries. That’s why the U.S. stock market has outperformed foreign stock markets year-to-date in 2018.
1 am: The U.S. Dollar’s rally is mostly over. This is no longer a bearish factor for corporate earnings or the U.S. stock market.
We demonstrated in the U.S. Dollar model why the USD will probably swing sideways in a big range instead of rallying throughout the rest of 2018.
*A U.S. Dollar rally puts downwards pressure on U.S. corporate earnings, which is slightly bearish for the stock market.
Here’s another interesting point: crude oil prices and the U.S. Dollar have a strong inverse correlation.

The correlation between the U.S. Dollar and Commercial Crude Days of Supply is even stronger

Commercial Crude Days of Supply continue to trend lower, which suggests that the U.S. Dollar’s rally is limited.
If the U.S. Dollar’s rally is limited, then exchange rate pressures on U.S. corporate earnings will also be limited.
1 am: The bond market is still in “risk off” mode, which is medium-long term bullish for stocks
The “High Yield – Treasury Yield” spread is the best “risk on / risk off” indicator for the financial markets. This spread tends to:

  1. Spike before an equities bear market begins
  2. Spike during an equities “significant correction”

The Spread has been COMPLETELY FLAT throughout this entire stock market correction from January 2018 – present. This suggests that the current correction will not turn into a “significant correction” or bear market.

Read Stocks on July 3, 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.

2 comments add yours

  1. Tory: If the USD trends sideways for the rest of the year what happens to oil and energy do they trend sideways also. Do you think the S&P 500 will out preform energy & oil for the rest of the year?

    • Yes most likely. I don’t think oil will go up or down a lot.
      Don’t know about Spx vs oil

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