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

Thoughts

  1. Corporate buybacks, dividends, and M&A are medium-long term bullish for the stock market in 2018
  2. This equities bull market doesn’t have a lot of years left.
  3. Foreign buyers aren’t bullish enough on U.S. equities. Suggests that the rally still has room to run.

Read Study: Russell leading the S&P is a bullish sign
1 am: Corporate buybacks, dividends, and M&A are medium-long term bullish for the stock market in 2018
Corporate buybacks, dividends, and M&A deals are on track to surge this year. From CNBC:
Companies are expected to inject $2.5 trillion into buybacks, dividends, and M&A this year. To put that number into perspective, This equals 10% of the S&P 500’s market capitalization.
This chart demonstrates why the tech sector continues to outperform this year – they account for the vast majority of buybacks.

The magnitude of corporate buybacks, dividends, and M&A is a bullish factor for the stock market in 2018.
1 am: This equities bull market doesn’t have a lot of years left.
Corporate unit profits have been down since the end of 2014.

This IS NOT a timing indicator for predicting the end of bull markets. Sometimes unit profits will fall a year or two before recessions and bear markets begin. Sometimes unit profits will fall for half a decade before unit profits begin. But this does tell us that 2014/2015 marked the halfway point for this economic expansion and bull market.
This indicator supports the thesis that this equities bull market doesn’t have many years left.
1 am: Foreign buyers aren’t bullish enough on U.S. equities. Suggests that the rally still has room to run.
One of the questions I seen get thrown around a lot is “U.S. investors are already very bullish on the U.S. stock market – who’s left to buy”? The answer is “foreign buyers”.
Foreign buyers are a contrarian signal for the U.S. stock market – they tend to buy U.S. stocks like crazy at tops and sell stocks like crazy at bottoms. And right now, foreign buyers have yet to “buy like crazy”.

As you can see from the chart above, foreign buyers are just starting to turn bullish on the U.S. stock market. This is a nominal data series, which means that foreign buying is even lower than previous bull market peaks when adjusted for inflation. Foreign buying needs to get crazier before this “big rally” and bull market can end.
Read Stocks on June 4, 2018: outlook

Outlook

Here’s what I think will happen based on my discretionary outlook.

  1. The S&P has made a 6%+ “small correction”. This will not turn into a “significant correction”.
  2. 2018 will trend higher but will also be a choppy year.
  3. 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. Thank you Troy for all the data you pull out . Love your work . I cant make a comment everyday but I do read it everyday .

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