Stocks on June 27, 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. A repeat of the 1930s global tariff wars is unlikely.
  2. Truck Tonnage is still trending higher. A medium-long term bullish sign for the stock market.
  3. July is the strongest month of the summer for the stock market (seasonality)
  4. Bitcoin’s bounces are getting weaker and weaker. I think there’s a >50% chance of a big breakdown.

Read Market studies for July 27, 2018: Amazon, Financial Stocks, China, GE
1 am: A repeat of the 1930s global tariff wars is unlikely.
The Smoot-Hawley Act of 1930 was arguably the biggest contributor to the Great Depression. It was a tariff act that impacted 28k goods – in other words, an across-the-board tariff.
Trump’s tariffs are tiny in comparison, and even if he wanted to, he couldn’t bring back a trade war on the scale of Smoot-Hawley. Here’s the point that many people don’t realize.

  1. Smoot-Hawley Act was backed by Congress. The Republicans in Congress were in strong support of Smoot-Hawley, and the president at the time (Hoover) had no choice but to sign it. Congress wanted it, the president didn’t.
  2. Trump wants tariffs right now. Congress is ambivalent, but will clearly be against a full-blown trade war. (See Bloomberg)

In other words, Trump can implement small-scale tariffs without heavy backlash from Congress. But if he pushes too hard and does hurt the U.S. economy in the process, Congress will stop him.
Congress today is generally pro-trade, whereas Congress in 1930 was heavily anti-trade.
1 am: Truck Tonnage is still trending higher. A medium-long term bullish sign for the stock market.
The latest reading for Truck Tonnage decreased a little from the previous reading. However, the key point is that Truck Tonnage continues to trend higher. This is a medium-long term bullish sign for the stock market.

Truck Tonnage is a medium-long term leading indicator for the stock market and economy. Historically, Truck Tonnage trends downwards before an equities bear market and economic recession begins. Truck Tonnage is trending upwards right now.
1 am: July is the strongest month of the summer for the stock market (seasonality)
Seasonality is a relatively minor factor to consider when trading, but it is worth watching nevertheless. July is the strongest month of the summer for the S&P 500.
The S&P’s average performance is +0.47%, which is much stronger than the S&P’s average performance in June (-0.18%)

1 am: Bitcoin’s bounces are getting weaker and weaker. I think there’s a >50% chance of a big breakdown.
And lastly, my thoughts on Bitcoin:
Bitcoin is almost purely driven by technical analysis because it’s mostly played by speculators who use technical analysis. Bitcoin’s technicals look terrible right now:

  1. Lower highs.
  2. Sitting on a “triple bottom” level.
  3. Every single bounce is getting weaker and weaker.

If Bitcoin breaks down below its $6k support, the first stop is $5k, then $3k.

*I don’t trade Bitcoin.
Read Stocks on June 26, 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.

2 comments add yours

  1. Current narrative is about a strong correlation between Bitcoin and DOW ( 1 month delay for the DOW). Seems to be consecutive not causative. Your opinion if any?
    Thanks Troy
    Massimo

    • I think it’s correlation and not causation.
      Hard to imagine that a tiny market like crypto impacts a massive market like the stock market. The problem with correlation is that you can’t use it for trading: you have no idea when correlation will break.
      Regards,
      Troy

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