Stocks on June 9, 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. I update this webpage throughout the day.

Thoughts

  1. Advance-Decline line continues to make new highs. The stock market will make new highs in the coming months.
  2. Heavy Truck Sales are still trending higher. A medium-long term bullish sign for the stock market.
  3. The bull market in tech stocks today is not like the dot-com bubble of the 1990s.
  4. The economy is not at full-employment. The economy and stock market still have room to run.

1 am: Advance-Decline line continues to make new highs. The stock market will make new highs in the coming months.
The cumulative Advance-Decline line (breadth indicator) continues to make new highs even though the S&P has yet to make new highs.

This is not a short term indicator for the stock market. It’s a medium term indicator. This suggests that:

  1. January 2018 wasn’t the stock market’s top, and…
  2. The stock market will make new highs over the next few months because…

…stock market tops are marked by bearish breadth divergences. This is a bullish breadth divergence. See study.
1 am: Heavy Truck Sales are still trending higher. A medium-long term bullish sign for the stock market.
The latest reading for Heavy Truck Sales dipped a little from the previous week’s reading. However, this dip is small. The key point is that Heavy Truck Sales are still trending higher. This is a medium-long term bullish sign for the stock market and economy because Heavy Truck Sales tend to fall significantly before an equities bear market or economic recession begins.

1 am: The bull market in tech stocks today is not like the dot-com bubble of the 1990s.
Another day, another one of these headlines.

Meanwhile the bears are pointing to charts like this, which demonstrates that tech is accounting for an increasing part of the S&P 500.

Technology accounting for a massive portion of the S&P 500 does not mean that this is reminiscent of the dot-com bubble. Similar symptoms, different facts.
Tech is accounting for a massive portion of the stock market because tech companies are rolling in revenues and profits. This simple chart demonstrates the explosion in tech revenues over the past decade.

In short, tech is accounting for a massive portion of the S&P simply because these companies are doing well. This chart demonstrates that the tech sector’s valuation today is much lower than where it was during the dot-com bubble (from Yardeni).

In short, the tech sector today is nothing like the dot-com bubble.
1 am: The economy is not at full-employment. The economy and stock market still have room to run.
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 bull market.

The Unemployment Rate – CPI is currently at 1.47%, which means that:

  1. This economic expansion and bull market are not over, but…
  2. This is the final quarter of this bull market.

*The economy and stock market move in the same direction in the medium-long term.
Read Stocks on June 8, 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. Troy, thanks again for the analysis. You are saying:
    The Unemployment Rate – CPI is currently at 1.47%, which means that:
    …but…This is the final quarter of this bull market
    and then you think S&P has still 1-2 years left in this bull market…
    is this not contradicting?
    thanks

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