Stocks on June 13, 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. I update this webpage throughout the day.

Thoughts

  1. Inflation is moderate. The “inflation will kill stocks” argument is wrong. No stagflation.
  2. FANG insiders are selling a lot of their own stocks. Not necessarily bearish.
  3. The Fed will hike rates today. A very small short term bearish sign for the stock market.

Read Study: what happens next to the stock market when the Put/Call Ratio remains low
Read Study: what happens to stocks, forex, commodities, and bonds when the Fed hikes rates
1 am: Inflation is moderate. The “inflation will kill stocks” argument is wrong. No stagflation.
The latest CPI reading demonstrates that year-over-year inflation is 2.7%. There is no “surging inflation”. Putting things into perspective demonstrates that inflation is moderate.

The recent rise in inflation is in large part due to the rise in oil. As oil prices stabilise, inflation will start to stabilise in the next few months.
The bears who argue that “stagflation” will kill the stock market are clearly wrong.

  1. Inflation hasn’t surged. There is no “stagflation” without surging inflation.
  2. Economic growth is strong. The Atlanta Fed estimates Q2 2018 GDP growth will be a strong 4.6%. There has been no significant slowdown in economic growth.


1 am: FANG insiders are selling a lot of their own stocks. Not necessarily bearish.
Bloomberg states that FANG insiders (Facebook, Amazon, Netflix, Google) are on track to sell more than $5 billion of stocks for the first half of 2018. While this sounds bearish, it isn’t. Look at the following chart.

As you can see, FANG insiders have been selling since 2016. The stock market has soared since then, which suggests that insiders aren’t better at timing the market than the average Joe.
In addition, perspective matters. FANG has a market cap of $2.474 trillion as of June 12, 2018. $5 billion in insider selling is a drop in the bucket.
1 am: The Fed will hike rates today. A very small short term bearish sign for the stock market.
The Fed is expected to hike interest rates today. Remember this study from before: the stock market tends to fall a little in the 1-2 weeks after a rate hike.

This is while the S&P 500 is exactly at its resistance level.

Other recent studies (here and here) suggested that the stock market’s 1-2 week forward returns will be bullish. On balance, I think the most likely path is that the S&P consolidates sideways at this resistance level for 1-2 weeks before trending higher.
Read Stocks on June 12, 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 significant correction at this point in time. I ignore small corrections. I only sidestep significant 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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