Stocks on May 22, 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 stock market is neither consistently bullish nor consistently bearish around Memorial Day (seasonality)
  2. Oil’s rally has less of an impact on the economy and stock market than it did in the past.
  3. The U.S. stock market will trend higher as trade war fears subside over the next few months.

Read Study: a rising and strong U.S. dollar isn’t consistently bearish for the stock market
2 am: The stock market is neither consistently bullish nor consistently bearish around Memorial Day (seasonality)
The U.S. stock market’s (S&P 500’s) seasonality around Memorial Day is pretty much random. Over the past 20 years, it has gone up 55% of the time before and after Memorial Day.
This doesn’t give bulls or bears any edge in the markets. The S&P goes up 55-60% of the time during any random week.

Remember, seasonality is one of the least important factors when looking at the markets. Trading based on Memorial Day seasonality is akin to rolling the dice.
2 am: Oil’s rally has less of an impact on the economy and stock market than it did in the past.
In yesterday’s post I said that the recent surge in oil isn’t a medium-long term bearish factor for the U.S. stock market and economy.
Bloomberg published a short but good article titled “Oil may return to $100 but it would feel different”

The bottom line is simple:
Oil prices aren’t high right now when adjusted for inflation, which is what I said yesterday.

In addition, the amount of energy needed to produce a unit of output has decreased thanks to increased energy efficiency (-10% over the past 7 years). The economy isn’t as reliant on oil as it used to be.
Moreover, the U.S. is getting closer and closer to being a net exporter of oil. This means that the U.S.’ net imports won’t spike when oil prices spike. Hence, the U.S. economy and stock market won’t be adversely impacted in a significant way if oil prices rise.

2 am: The U.S. stock market will trend higher as trade war fears subside over the next few months.
The U.S. suspended its tariff threats on Chinese imports as the U.S. and China work out a deal.
Like I’ve said over the past few months, Trump never wanted a real trade war with China. There will be threats from both sides during the course of negotiations, but the final result will most likely be a trade deal before the midterm elections.
Large cap stocks are weighing down on the U.S. stock market right now. Large cap stocks will catch up with their small cap and tech counterparts as trade war fears slowly dissipate over the next few months.



The road to a trade deal will not be easy. There will be hiccups along the way, but the end result is most likely one that will favor the U.S.
Read Stocks on May 21, 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.

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