Stocks on April 13, 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. U.S. could announce which Chinese goods are on the list of $100 billion in additional tariffs as early as next week. A short term bearish factor for the stock market.
  2. Demand for Treasuries is strong. There is no “federal debt crisis” right now that can hurt the stock market.
  3. Initial Claims are starting to flatten. This bull market has at most 2 years left.

1 am: U.S. could announce which Chinese goods are on the list of $100 billion in additional tariffs as early as next week. A short term bearish factor for the stock market.
According to Zerohedge:

Administration officials familiar with the U.S. strategy say that the U.S. trade representative, as early as next week, will detail which products are on the list of $100 billion in Chinese goods subject to 25% import tariffs.

I expect this to be a short term bearish factor for the stock market when it is announced, but not a medium-long term bearish factor. As you can clearly see, each piece of tariff-related news is having a smaller and smaller bearish impact on the U.S. stock market.

  1. Trump imposed tariffs on steel and aluminium on March 9. That came close to marking an intermediate top in the U.S. stock market.
  2. April 2: China hits back with tariffs on $3 billion of U.S. exports. The S&P 500 falls, but fails to make a new low vs its February 9 lows.
  3. April 3-5: China and the U.S. both threaten eachother with more tariffs. The S&P is very volatile but fails to make new lows.

Remember, the short term may be bearish, but the medium-long term is bullish. Risk:reward states that you should focus on the medium-long term.
1 am: Demand for Treasuries is strong. There is no “federal debt crisis” right now that can hurt the stock market.
There have been rising fears of a federal debt crisis recently thanks to the surging federal deficit. Bearish investors and traders are afraid that the supply of federal debt will overwhelm demand, which will cause interest rates to soar, the economy to tank, and the stock market to tank.
The latest news suggests otherwise. Demand for long term 30 year Treasury bonds remains solid. The bid-to-cover was 2.41, which suggests strong demand for Treasuries.
*A bid-to-cover ratio above 2.0 = strong demand.
This means that even if there is a debt crisis in a few years, there is none right now. Timing is everything. The surging federal debt is not a medium-long term bearish factor for the economy or stock market right now because the government has no problem financing it. It will only be a problem once the government has trouble financing its debt.
1 am: Initial Claims are starting to flatten. This bull market has at most 2 years left. 
Initial Claims went down from the previous week’s reading, but has mostly been flat over the past few months.

*Initial Claims lead the economy and stock market. Historically, Initial Claims trended higher before a bear market in stocks started.
This suggests that the bull market in stocks is not over because Initial Claims have not trended higher yet (it is mostly flat right now).
HOWEVER, we are watching out for any SUSTAINED increase in this data series because Initial 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 1-2 years left.

Read Stocks on April 12, 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 also be a choppy year. There will be another correction later this year.
  3. Why I’m medium-long term bullish on the stock market from a discretionary point of view.
  4. 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. So please take my short term thoughts with a grain of salt.
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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