Stocks on May 17, 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. China INCREASED its Treasury holdings in March. There’s no real medium-long term trade war risk for the stock market.
  2. Equity Put/Call Ratio is very low. A short term bearish sign for the stock market.
  3. Housing Starts fell a little but are still trending higher. Medium-long term bullish for stocks.
  4. YoY change in Industrial Production is still trending higher. Supports the long term bullish case for stocks

Read Study: what happens next when small cap (Russell 2000) leads the stock market’s rally
5 am: China INCREASED its Treasury holdings in March. There’s no real medium-long term trade war risk for the stock market.
Traders and investors were afraid that China would dump U.S. Treasuries in retaliation for Trump’s tariffs. Here’s the latest data: China actually INCREASED its Treasury holdings.
Here’s China’s Treasury holdings, in billions of $

Perhaps China is waiting to see if the U.S. will actually enact tariffs. But the point here is that neither party really wants a trade war. These were all just threats before both parties got to the negotiating table.
A full-blown trade war is extremely unlikely. This isn’t a medium-long term risk to the stock market.
5 am: Equity Put/Call Ratio is very low. A short term bearish sign for the stock market.
The Equity Put/Call ratio just fell to 0.5. This sentiment indicator demonstrates that traders are too bullish on stocks right now. This is historically a short term bearish sign for the stock market.

Note: this indicator is not a medium-long term bearish sign for the stock market. It’s only meant to be used for the short term.
I think the stock market is going up in the medium-long term, but its short term weighs towards the downside. See previous study
3 am: Housing Starts are still trending higher. Medium-long term bullish for stocks.
Housing Starts decreased a little from the previous month’s reading (1287k vs 1336k). However, the important point is that Housing Starts are still trending higher and made a new high for this economic expansion just recently.

The economy and stock market move in sync over the long run. Housing is a leading indicator for the U.S. economy. Hence, an improving Housing Starts is a medium-long term bullish sign for the U.S. economy and stock market.

3 am: YoY change in Industrial Production is still trending higher. Supports the long term bullish case for stocks
Industrial Production expanded 3.5% from a year ago. Industrial Production growth is still trending higher.

This is more of a medium-long term bullish sign than a bearish sign. Sometimes Industrial Production and the equities bull market peak together. But most of the time Industrial Production growth decreases before an equities bear market begins.

Read Stocks on May 16, 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 will 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.

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