Stocks on November 7, 2018: fundamental outlook


*Go to the blog for my latest market outlook. Members can go here to see our trading model’s latest updates and how we’re trading the U.S. stock market right now based on these models.
The economy and stock market move in the same direction in the medium-long term. Hence, leading economic indicators are also leading indicators for the stock market.

Thoughts

  1. Net earnings revisions are still positive. Bullish for stocks this year, but will turn bearish in mid-2019
  2. ISM services is still trending higher. Bullish for stocks.
  3. JOLTS is still trending higher. Bullish for stocks.

Read Is the stock market’s rally “all good to go”?
1 am: Net earnings revisions are still positive. Bullish for stocks this year, but will turn bearish in mid-2019
The S&P 500’s net earnings revisions are still positive.

The S&P 500’s Net Earnings Revisions turns negative before economic recessions and equity bear markets begin. During economic expansions, it has shown mixed performances because analysts tend to downgrade their earnings expectations as the year goes on. That’s why negative Net Earnings Revisions is a necessary but not sufficient requirement for equities bear markets and economic recessions.
Net Earnings Revisions is far from negative right now. A bear market is not imminent. HOWEVER, you can see that this data is trending downwards. It will likely turn negative in Q2-Q3 2019
1 am: ISM services is still trending higher. Bullish for stocks
Although the latest reading for ISM services fell a little, ISM services is still trending higher.

This suggests that the bull market’s top is not in. ISM services had been trending downwards before the September 2000 and October 2007 bull market tops.


1 am: JOLTS is still trending higher. Bullish for stocks.
The latest reading for JOLTS fell a little from its previous reading. But more importantly, JOLTS is still trending higher.
*JOLTS = job openings

This confirms the medium-long term bullish sign in Initial and Continued Claims. JOLTS is a leading indicator for the stock market and economy. This chart demonstrates the positive correlation between JOLTS and the S&P 500. An uptrend in JOLTS = an uptrend in the S&P 500.

Read Stocks on November 2, 2018: outlook

Outlook

Here’s what I think will happen based on our discretionary outlook:

  1. The S&P 500 has less than 1 year left in this bull market (bull market top sometime in 2019).
  2. The recent decline is just a correction in a bull market. The medium term direction is still bullish  (i.e. trend for the next 6-9 months)

Our discretionary outlook is usually, but not always, a reflection of how we’re trading the markets right now. We trade based on our clear, quantitative trading models, such as the Medium-Long Term Model.
Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.

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