Stocks on November 9, 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. Philadelphia Fed’s Leading Index is falling: this equities bull market doesn’t have a lot of years left.
  2. Unit profits are down: this equities bull market doesn’t have a lot of years left.
  3. Heavy Truck Sales are trending higher. Although this bull market is aged, it is not over.
  4. Initial Claims is starting to trend sideways. Not yet long term bearish for U.S. stocks, but will be bearish in 2019 if Initial Claims start to trend upwards.
  5. Continued Claims are still trending downwards. Still long term bullish (still a bull market) for the U.S. stock market.

1 am: Philadelphia Fed’s Leading Index is falling: this equities bull market doesn’t have a lot of years left.
The Philadelphia Fed’s Leading Index is falling right now. More importantly, this Leading Index is trending lower.

Historically, this means that we are close to the end of the economic expansion & bull market. In the past, this Leading Index reached 1% or lower before a bear market began. We’re not quite there yet, but getting there.

1 am: Unit profits are down: this equities bull market doesn’t have a lot of years left.
Corporate unit profits have been trending downwards 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 bear markets begin. But this does tell us that 2014/2015 marked the halfway point for this economic expansion and bull market.

This indicator suggests that this equities bull market doesn’t have many years left.
1 am: Heavy Truck Sales are trending higher. Medium-long term bullish for the stock market.
The latest reading for Heavy Truck Sales went down from 539k to 515k. But more importantly, Heavy Truck Sales are still trending higher.

This is a medium-long term bullish sign for the stock market. Although we are certainly late-cycle, this bull market is not over. Historically, Heavy Truck Sales trended downwards before bear markets and economic recessions began (see study)

1 am: Initial Claims is starting to trend sideways. Not yet long term bearish for U.S. stocks, but will be bearish in 2019 if Initial Claims start to trend upwards.
Yesterday’s reading for Initial Claims went down a little from its previous reading (from 215k to 214k). While Initial Claims have mostly been trending lower, they are now starting to trend sideways right now.

*Initial Claims lead the economy and stock market. Historically, it trends higher before a bear market in stocks started (see study).

This suggests that the bull market in stocks is not over because Initial Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Initial Claims are very low right now (historically speaking).
At such low levels, Initial Claims will probably trend upwards in 2019.

1 am: Continued Claims are still trending downwards. Still medium term bullish for the U.S. stock market.
Yesterday’s reading for Continued Claims made a new low for this economic expansion. The key point is that Continued Claims are still trending lower right now.

Like Initial Claims, Continued Claims lead the stock market and economy.
This suggests that the bull market in stocks is not over because Continued Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Continued Claims are very low right now (historically speaking). We are trying to catch the bull market’s top because the bull market most likely only has 1 year left.

This chart demonstrates the inverse correlation between the S&P 500 and Continued Claims. A downwards trending Continued Claims = medium-long term bullish for the stock market.

Read Stocks on November 7, 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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