Stocks on May 10, 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. Breadth continues to lead the stock market higher.
  2. The yield curve still has AT LEAST a few months before it inverts. A medium-long term bullish sign for the stock market.
  3. Rising oil prices = good for corporate earnings = good for the stock market.

Read Study: what happens next to the stock market when VIX falls below 14
4 am: Breadth continues to lead the stock market higher.
The NYSE’s cumulative Advance-Decline Line continues to trend higher by making “higher lows”.

This is preventing the S&P 500 from making “lower lows”.

Breadth continues to improve because small cap stocks are leading the stock market upwards (while large cap stocks are weighing down on the overall market). The Russell 2000 (small cap index) is very close to making new highs.

Improving breadth is a medium term bullish sign for the stock market. Perhaps the stock market will make a small short term pullback with the small cap index (Russell) at prior high resistance. But this short term downside is limited.
4 am: The yield curve still has AT LEAST a few months before it inverts. A medium-long term bullish sign for the stock market.
Despite fears from the bears, the yield curve hasn’t really flattened year-to-date in 2018. The difference between the 10 year and 2 year Treasury yield is still approximately 0.5%.

It’ll take at least half a year before the yield curve can invert. Remember this study: historically, the yield curve must first invert BEFORE the bull market in stocks can end. This means that the risk of a bear market starting in the next 6 months is low right now.
4 am: Rising oil prices = good for corporate earnings = good for the stock market.
Oil prices are rising, which means that energy sector’s corporate earnings are rising as well.

The energy sector’s earnings growth is already the highest for the S&P 500.

With oil prices higher today than they were in Q1 2018, energy sector earnings growth will continue to increase. This will be a boost to corporate America’s earnings, which is a medium term bullish factor for the stock market.
Read Stocks on May 9, 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.
  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.

1 comment add yours

  1. Dear Troy. I see that you closed your positions in Day Trading for QQQ and SPY. Do you foresee a short term small drop of the indexes coming?

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