Stocks on March 31-April 1, 2018: weekend 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. CNNMoney Fear & Greed Index is still very low.
  2. April is seasonally bullish for the stock market because of a dividend boost.
  3. Personal Consumption growth is still strong. Medium-long term bullish for the stock market.
  4. Volume has been rising when the market falls. Volume has been falling when the market rises. Not a bearish sign for the stock market.
  5. Corporate debt is very high. Not a long term bearish factor for the stock market yet.
  6. U.S. mortgage application activity will fall soon. Not a long term bearish factor for the stock market yet.

Read Study: a sudden decline in sentiment is bullish for stocks
Read Study: the S&P 500 will probably break down below its 200 sma soon
April 1: CNNMoney Fear and Greed Index is still very low.
The Fear and Greed Index combines 7 indicators to create a sentiment indicator for the stock market. It is extremely low right now, which is short-medium term bullish for the stock market.
*Sentiment indicators are contrarian for the stock market. Extremely pessimistic sentiment = bullish, extremely optimistic sentiment = bearish

April 1: April is seasonally bullish for the stock market because of a dividend boost.
I mentioned previously that April is the stock market’s strongest month of the year (from a seasonality perspective).
There’s a simple explanation behind this seasonality: April is dividend month. A lot of investors buy stocks this month just for the dividend boost.
This April will be especially powerful thanks to Trump’s tax cut. Most of the tax cut is being used to finance share buybacks and dividends. Up to $400 billion will be paid out in dividends in April.
April 1: Personal Consumption growth is still strong. Medium-long term bullish for the stock market.
Personal Consumption growth is still strong and flat right now. Historically, Personal Consumption growth starts to fall before a bear market and recession begins.
*Personal Consumption is important because it accounts for 70% of U.S. GDP

This implies that a bear market is not imminent. The start of the next bear market is AT LEAST months away. This is a medium-long term bullish sign for stocks.
March 31. Volume has been rising when the market falls. Volume has been falling when the market rises. Not a bearish sign for the stock market.
Volume has gone up when the market has fallen, and volume has gone down when the market has risen. Here’s $SPY, the S&P 500’s 1x ETF.

Traditional volume analysis considers this to be a short-medium term bearish sign for the stock market. It isn’t. It’s an irrelevant sign.
I said that volume is a coincident indicator and not a leading indicator for the stock market in Don’t use volume when trading.

  1. Volume ALWAYS rises when the market crashes. There’s nothing bearish about this. It’s just a fact.
  2. Volume ALWAYS falls after the market’s bottom is in. Healthy rallies aren’t marked by “rising volume”. Normal rallies are marked by low volume.

This is not a short-medium term bearish sign for the stock market. It’s an irrelevant sign.
March 31. Corporate debt is very high. Not a long term bearish factor for the stock market yet.
Some investors argue that the insanely high corporate debt is now a long term bearish factor for the stock market. I slightly disagree. The timing for this is wrong.

It doesn’t matter how high debt is. What matters is whether or not debt is serviceable. Debt is serviceable right now because interest rates are still historically low (despite the Fed’s rate hikes).
You can see in the following chart that the delinquency rate leads recessions and bear markets. The delinquency rate is still going down right now.


Corporate debt will be a big problem during the next recession and bear market AFTER interest rates are much higher than where they are today. But the corporate bond market does not suggest that bear market is imminent.
March 31. U.S. mortgage application activity will fall soon. Not a long term bearish factor for the stock market yet.
The U.S. mortgage application activity index is rising right now but will fall soon.
This is not a bearish sign for the economy. Mortgage application activity is highly seasonal and almost always peaks in April.

The economy and stock market move in sync over the medium-long term. This isn’t a bearish factor for the economy, so it isn’t a medium-long term bearish factor for the stock market.
Read Stocks on March 30, 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.

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