Stocks on March 20, 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. NASDAQ is decoupling from Facebook. A short term bullish sign for stocks.
  2. VIX is once again in backwardation. Medium term bullish sign for the stock market.
  3. How the Fed’s rate hike will impact the stock market.
  4. Consumer Sentiment is making new highs. Medium-long term bullish factor for the stock market.

Read Study: breadth suggests that this “small correction” won’t turn into a “significant correction”
3 pm: NASDAQ is decoupling from Facebook. A short term bullish sign for stocks.
The U.S. stock market and NASDAQ were led lower by Facebook yesterday, which was hit by the Cambridge Analytica scandal. Other tech stocks are ignoring Facebook today. Facebook is down another -4.2% while…

  1. Amazon is up 1.8%
  2. Apple is up 0.1%
  3. Netflix is up 1.2%
  4. Microsoft is up 0.6%

In other words, the excuse for yesterday’s tech selloff is now irrelevant. Other tech companies aren’t being dragged lower by Facebook anymore. This is a short term bullish sign for the U.S. stock market.
3 am: VIX is once again in backwardation. Medium term bullish sign for the stock market.
Backwardation means that near term futures’ contracts are more expensive than later-dated futures contracts. This means that the futures curve slopes downwards from left to right.
VIX futures are usually in contago (sloping upwards from left to right) because the “smart money” expects volatility to increase as time goes on.
VIX is currently in backwardation, which is a rare and medium term bullish sign for the stock market. The “smart money” expects volatility to decrease over the next few months.

3 am: How the Fed’s rate hike will impact the stock market.
The stock market tends to go up more often than it goes down on a rate hike day. Here is the S&P 500’s reaction to a rate hike (daily CLOSE $ vs the previous day’s CLOSE $).

  1. December 13, 2017: S&P was unchanged.
  2. June 14, 2017: S&P went up 0.4%.
  3. March 15, 2017: S&P went up 0.8%
  4. December 14, 2016: S&P fell -0.8%
  5. December 16, 2015: S&P went up 1.4%

 
3 am: Consumer Sentiment is making new highs. Medium-long term bullish factor for the stock market.
The University of Michigan’s latest Consumer Sentiment reading is making new highs for this economic expansion. This is a medium-long term bullish factor for the stock market. It implies that the bull market isn’t over.
Historically, Consumer Sentiment trended downwards for a few months before a bear market in equities began. Sentiment is making new highs right now.

Read Stock market on March 19: 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. 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.

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