Stocks on July 7, 2018: weekend 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. Heavy Truck Sales are still trending up. A medium-long term bullish sign for the stock market
  2. Labor market conditions are bullish for the stock market
  3. The economy is not at full-employment. The economy and stock market still have room to run.
  4. Federal tax receipts dipped. NOT bearish for the economy and stock market.

Read Study: breadth is leading the stock market higher. A bullish sign
Read Study: gold and agriculture will bounce, but don’t be a long term bull
1 am: Heavy Truck Sales are still trending up. A medium-long term bullish sign for the stock market
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.
Heavy Truck Sales is a leading indicator for the economy and stock market. This indicator tends to trend  downwards before an equities bear market or economic recession begins.
Heavy Truck Sales have not trended downwards so far. They’ve been flat-trending upwards. This is a medium-long term bullish sign for the stock market.

1 am: Labor market conditions are bullish for the stock market
The Kansas City Fed creates a Labor Markets Conditions Index, which measures the strength of the labor market.
The U.S. labor market is healthy right now. This is a medium-long term bullish sign for the stock market right now. You can see the labor market conditions fell to zero at the top of previous bull market peaks.

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.
1 am: The economy is not at full-employment. The economy and stock market still have room to run.
Nonfarm payrolls increased by 213k, which is a strong reading for the labor markets. However, unemployment actually went up from 3.8% to 4% due to a surge in new people looking for jobs (+499k). So while the increase in the unemployment rate may seem bearish, it isn’t. This just means that there’s still more slack in the labor markets and that more sidelined unemployed individuals are coming back to the labor markets.
More importantly, the unemployment rate is still trending downwards.

Many traders like to guess when the unemployment rate will bottom and start to tick up. This is a silly exercise and waste of time. Any guess is just a guess – nothing more. A better measure of “full employment” = Unemployment Rate – CPI (inflation). As you can see from the following chart, this data series tends to reach 0 towards the end of an economic expansion and equities bull market.

The Unemployment Rate – CPI is currently at 1.08%, which means that:

  1. The economic expansion and bull market are not over, but…
  2. We are near the last leg of this bull market.

*The economy and stock market move in the same direction in the medium-long term.
1 am: Federal tax receipts dipped. NOT bearish for the economy and stock market.
Federal tax receipts dipped in the latest quarter.

Some investors see this as a bearish sign. The think falling tax receipts means that the economy and corporate earnings are going down. This is false.
Tax receipts are going down because of Trump’s tax cut. It has nothing to do with the economy. In fact, the economy and corporate earnings are on fire right now, which is medium-long term bullish for the stock market.
You can see that dips in federal tax receipts in the middle of economic expansions are normal: they’re usually caused by tax cuts.

Read Stocks on July 6, 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.

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