Stocks on May 19, 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. Yield curve is steepening a little bit. Buys this equities bull market some more time.
  2. Leading Economic Index is still trending higher. A medium-long term bullish factor for the stock market.
  3. GDP continues to exceed potential output. This bull market doesn’t have many years left.

Read Why I’m short term bearish and medium term bullish on stocks
1 am: Yield curve is steepening a little bit. Buys this bull market some more time.
Interest rates are rising, so the majority of financial media is asking “when will rising interest rates hurt stocks”. This is the wrong question to ask.
Investors and traders should focus more on the yield curve. An inverted yield curve is a leading indicator for bear markets and recessions.
The yield curve has not inverted yet. In fact, the yield curve has steepened a little bit, which buys us more time until the yield curve inverts.

This leading indicator for bear markets still has months before it becomes triggered (probably at least half a year).
1 am: Leading Economic Index is still trending higher. A medium-long term bullish factor for the U.S. stock market.
The U.S. economy and stock market move in sync over the long run.
There are a few small and insignificant signs of economic data deterioration right now. But as a whole, the U.S. economy is still growing at a healthy rate.
The Leading Economic Index’s latest reading increased 0.4%, up from 0.3% in the previous month. The year-over-year change in LEI is still trending higher: this is important because the Leading Economic Index tends to turn negative before a recession begins.

This is a medium-long term bullish sign for the U.S. stock market.
1 am: GDP continues to exceed potential output. This bull market doesn’t have many years left.
The output gap measures the difference between current GDP (current output) and “potential GDP”. GDP continues to exceed “potential GDP”, which puts upwards pressure on inflation.

Historically, a bear market and recession didn’t always start when current GDP exceeded “potential output” by this much. But it meant that the bull market and economic expansion didn’t have many years left.
Read Stocks on May 18, 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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