- The S&P 500 is still supported on its 100 daily moving average.
- The S&P 500 hasn’t made a new all-time high in 4 months. It’ll probably make a new high in the next 1-2 months.
- The Fed is tightening monetary policy very slowly. The Fed is not tightening enough to hurt the stock market and economy.
Read Study: how long does it take for a 10%+ “small correction” to make new highs
1 am: The S&P 500 is still supported on its 100 daily moving average.
Last weekend I said that I was short term bearish on the stock market. This study demonstrated that the stock market would either consolidate sideways or make a pullback. The S&P 500 is consolidating right now by finding support on the 100sma instead of making a pullback.
The longer the S&P 500 consolidates, the less likely it is to make a pullback. I think this rising trendline (below the 200sma) represents maximum downside for the S&P 500.
1 am: The S&P 500 hasn’t made a new all-time high in 4 months. It’ll probably make a new high in the next 1-2 months.
The S&P 500 hasn’t made a new all time high since its late-January 2018 high. With the economy continuing to improve and the stock market swinging sideways, the stock market will eventually breakout on the upside. The economy and stock market move in the same direction in the long run.
Now with respect to timing this stock market breakout…
I conducted a study last month demonstrating that it usually takes a maximum of 5 months for the S&P to make a new high after a 10%+ “small correction”. As of last month, I said “it can take up to another 2 months before the S&P will make a new high”. 1 month has come and go. This means that from a TIME cycle perspective, the S&P will probably make a new high in 1 month.
*Please take my short term thoughts with a grain of salt. I focus on the medium-long term.
1 am: The Fed is tightening monetary policy very slowly. The Fed is not tightening enough to hurt the stock market and economy.
Bearish investors and traders frequently point to the Federal Reserve’s monetary tightening to support their bearish case for the stock market. But here’s the simple reality: the Fed is tightening monetary policy very slowly and careful.
This chart demonstrates the degree of monetary tightening. Ignore the green line and focus on the red line, which demonstrates the cumulative changes in the Fed Funds rate. Notice how the Fed is raising rates rather cautiously.
This chart demonstrates how slowly the Fed is tapering its holdings.
With the Fed avoiding aggressive easing in the face an improving economy, the stock market should go up over the next year.
Read Stocks on May 25, 2018: outlook
Here’s what I think will happen based on my discretionary outlook.
- The S&P has made a 6%+ “small correction”. This will not turn into a “significant correction”.
- 2018 will trend higher but will also be a choppy year.
- 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.