Stocks on March 16, 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. Rising mortgage rates can’t hurt the economy and stock market (yet).
  2. Home Builder Sentiment: a medium-long term bullish sign for stocks.
  3. Retail Sales growth: typical of late-expansion behavior.
  4. Initial claims are still trending down. The equities bull market hasn’t ended.

3 am: Rising mortgage rates can’t hurt the economy and stock market (yet).
The housing market is a leading indicator for the U.S. economy and stock market. U.S. mortgage rates have been rising since January.

Does this mean that the expansion in housing (and the economy) is over? No. Mortgage rates are still extremely low from a historical perspective.

Rising mortgage rates will cause growth in the housing market to slow down. But mortgage rates are still too low to cause the housing market to contract. This is not yet a medium-long term bearish factor for the stock market and economy.
3 am: Home Builder Sentiment: a medium-long term bullish sign for stocks.
The NAHB Housing Market Index (Home Builder Sentiment) fell for the 3rd straight month. However, the important thing to note here is that Home Builder Sentiment is still trending higher. Historically, sentiment trends lower for at least a year before a bear market in equities begins. This supports the thesis that an equities bear market will not begin in 2018.

3 am: Retail Sales growth: typical of late-expansion behavior.
Retail Sales fell -0.1% month-over-month. More importantly, the year-over-year growth in Retail Sales is flattening.

This is typical of the final 1-2 years of an equities bull market and economic expansion. We are watching out for signs of further deterioration. This is consistent with trends we are seeing in other economic data series: the economy is growing at a healthy pace, but there are some preliminary signs of weakening. This is not a reason to be bearish yet, but we are watching out.
3 am: Initial claims are still trending down. The equities bull market hasn’t ended.
Initial Jobless Claims fell from last week’s reading (down to 226k from 230k). This means that Initial Claims are still trending lower. This is a medium-long term bullish sign for the stock market. Historically, Initial Claims trended higher before a bear market in stocks started.

Initial Claims are extremely low right now. We are watching out for any SUSTAINED increase in this data series. There has been no sustained increase so far.
Read Stock market on March 15: outlook

Outlook

Here’s what I think will happen based on my discretionary outlook.

  1. The S&P has made a small 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. 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.

4 comments add yours

  1. Hello Troy
    There are plenty of similarity between Trump and Hoover
    SP500 has moved almost the same trajectory where Nikkei moved in 1990
    Dow is making a triangle consolidation pattern
    I think next four weeks might be the big one
    kind regards

  2. Troy,
    What’s going on here with all these blow out economic indicators and the market selling off?
    Last Friday’s nfp.
    Today’s consumer confidence.
    Market is selling off on great economic numbers
    For the week the market sold off over 1% on great eco data numbers.

    • Could be a sign that the market is about to make another short term dip.
      I wouldn’t read too much into it though. I’ve seen a lot of cases in which the market doesn’t initially go up on good economic data, but goes up later when there’s no news.

  3. Also can u do an update to last weekends post on how u predicted further momentum coming into this past week and post some new data on market conditions in % terms and time frames pertaining to the post last weekend on how we should rally a % range after last Friday’s nonfarm payrolls reportnonfarm

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