Stocks on June 14, 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. The Insider Transaction ratio suggests that the market’s short term downside is limited.
  2. Trump could slap China with tariffs as soon as Friday. A short term bearish factor for the stock market.
  3. Yardeni’s leading indicator is trending higher. A medium-long term bullish sign for the stock market.

Read Study: the yield curve continues to flatten. A medium-long term bullish sign for the stock market
1 am: The Insider Transaction ratio suggests that the market’s short term downside is limited.
Barrons produces an Insider Transaction Ratio, which is the ratio of insider sales to buys. Readings under 12:1 are short term bullish for the stock market, readings above 20:01 are short term bearish for the stock market. The latest reading is approximately 12:1

But here’s the more important point. Multi-week tops in the stock market usually require the Insider Ratio to be above 20 (necessary but not sufficient condition). When the Insider Ratio is as low as it is today, the stock market’s short term pullbacks are limited.
1 am: Trump could slap China with tariffs as soon as Friday. A short term bearish factor for the stock market.
From Politico:
President Donald Trump is expected to impose tariffs on Chinese goods as soon as Friday or next week, according to two sources briefed on internal deliberations. The administration on Friday is planning to publish a final list of Chinese goods that will take the hit.
I don’t expect this to be a medium term bearish factor for the stock market:

  1. For starters, these tariffs don’t have a significant impact on the U.S. economy.
  2. This is how tough negotiations work: show the carrot and the stick (or “good Trump”, “bad Trump”).
  3. China ultimately has more to lose from a trade war because it is a net exporter while the U.S. is a net importer. So no matter how intense the negotiations seem, I think the ultimate result will be a trade deal that favors the U.S.

In addition, the market has mostly been ignoring trade war-related news over the past few weeks. Hence I think that when Trump does levy tariffs, it’ll only be a short term bearish factor for the stock market.
This supports the case from other market studies: the stock market will pullback or consolidate in the short term before going higher in the medium term.
1 am: Yardeni’s leading indicator is trending higher. A medium-long term bullish sign for the stock market.
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 goes up.
This leading indicator is trending higher right now, so it’s a medium-long term bullish sign for the stock market.
Read Stocks on June 13, 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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