Stocks on April 3, 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. Earnings season is coming up in the second half of April. The stock market’s downside is limited.
  2. Global growth is slowing down. Supports the case for another correction in the second half of 2018.
  3. China will announce more retaliatory tariffs after April 6. A short term bearish factor for the stock market.

Read Study: A close below the 200 sma is medium-long term bullish for stocks
1 am: Earnings season is coming up in the second half of April. The stock market’s downside is limited.
Q1 2018 earnings season will begin in less than 2 weeks. And although the stock market doesn’t always go up during earnings season, it rarely tanks during earnings season.
Read Don’t trade earnings reports
Earnings season is typically used as a reversal trigger. This means that if the stock market is going down before earnings season, it typically uses earnings season to rally.
So if the stock market is going down right now, it’s downtrend is limited in terms of TIME. It can at most fall until mid-April.
1 am: Global growth is slowing down. Supports the case for another correction in the second half of 2018.
2017 was all about “sychronized global economic growth”. That synchronized economic growth is coming to an end. Many major economies (excluding the U.S.) are starting to deteriorate.

I expect U.S. economic growth to slow down a little bit in the second half of 2018 along with the rest of the world. This supports the case for another 6%+ “small correction” in the second half of 2018.
1 am: China will announce more retaliatory tariffs after April 6. A short term bearish factor for the stock market.
The U.S. will release a list of goods for its $50 billion tariff on Chinese exports to the U.S. by April 6. China said that it will announce counter-tariffs once the U.S. publishes this list of goods. (China doesn’t want to jump the gun, that’s why it’s waiting for the U.S. to move first).
This is a short term bearish factor for the stock market. So far the S&P 500 has sold off on tariff news EVEN THOUGH these tariff-related news were expected well in advance (there was nothing unexpected about the steel, aluminium, and China tariffs.) All of these selloffs ended after a few days.
I think this will be the end of the tariff threats after China announces its counter-tariffs. Trump’s goal isn’t to start a full-blown trade war with China. He wants to negotiate a better trade deal with China, and China is willing to give in on some U.S. demands.
This is a short term bearish factor for the stock market but not a medium-long term bearish factor.
Read Stocks on April 2, 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.
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.

14 comments add yours

      • If you’re long the S&P before the next bear market is it better to be in UPRO or SSO?

        • If you know for 100% certainty that the bull market isn’t over, UPRO is better. SSO is in case I get this wrong: the stop loss indicator will tell me to sell and my loss will be mich smaller.

          • Troy, how would you rate the change of your confidence of the 2018 outlook Between a week ago and now? Your answers suggest that it was somehow shattered, no?

          • No Oskar, my 2018 outlook has not changed. I still think the stock market will go up in 2018, but in a very choppy manner.
            I don’t have and never provide price predictions. I think guessing the December 2018 close is a silly exercise. I can only guess if the market is going up or down.

      • So, will switch back to UPRO when you feel this leg has found a bottom (potentially in the next few days/week)? If that is the case, do you also intend to switch back to SSO when S&P makes a new high? OR economic data shows signs of deteriorating?

        • I think I will stick to SSO for the last 1-2 years of this bull market. 2x leverage is still plenty of leverage to outperform the market.

  1. Troy considering that there will be another correction as you mention, doesn’t this make the risk to reward ratio less appealing?

    • Hi Ahmad,
      It depends on what time frame. The “medium term” = before the next significant correction. I should have been more clear in explaining these terms.

  2. Trump is from Queens. I’m from Queens. People from Queens are pretty stubborn, are you sure this won’t turn into a trade war? Futures are looking pretty unhappy!

    • Hi Ahmad,
      There is never any uncertainty, which is why we can only decide based on probability. I think the odds are very low.

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