- Money Flow poured out of the stock market in February and March. Not a long term bearish indicator for the stock market.
- Sentiment is becoming increasingly pessimistic right now. A medium term bullish sign for the stock market.
- Companies are increasing capital expenditure. A medium-long term bullish factor for the economy & stock market.
Read Study: do corporate earnings lead the stock market?
1 am: Money Flow poured out of the stock market in February and March. Not a long term bearish indicator for the stock market.
Investors yanked money from Mutual Funds and ETFs at a record pace in February and March.
Bearish investors see this as a bearish sign because “investors are rushing for the exits”. Bullish investors see this as a bullish sign because they’re thinking contrarian.
I see it as neither. This is mostly an irrelevant factor for the stock market. “Money flowing out of the stock market at a record pace” is stating a fact. It has no predictive value for the future.
When the stock market goes down, money pours out. When the stock market goes up, money pours in. It’s just stating a fact. The stock market is not going to go down this quarter just because it went down last quarter. Conversely, the stock market is not going to go up this quarter just because it went up last quarter.
The value of the stock market is higher than it was ever before. So it’s only natural for the absolute value of Money Flow will keep making “extremes” and records. A more appropriate measure would be Money Flow / value of the S&P. This puts Money Flow into relative terms, like a percentage.
1 am: Sentiment is becoming increasingly pessimistic right now. A medium term bullish sign for the stock market.
The interesting thing about this correction is that the stock market is washing out sentiment just by swinging sideways. Sentiment is becoming more and more pessimistic, which is a medium term bullish sign for the stock market.
The last time this happened, the S&P 500 made a 3 month rally in 2008. But that was during a bear market when the economy was rapidly deteriorating. With the economy improving today, such low sentiment should lead to an even longer rally.
1 am: Companies are increasing capital expenditure. A medium-long term bullish factor for the economy & stock market.
The economy and the stock market move in sync over the medium-long term. And it looks like Trump’s tax cut is having a positive impact on the economy and stock market. From Bloomberg:
Among the 130 companies in the S&P 500 that have reported results in this earnings season, capital spending increased by 39 percent, the fastest rate in seven years, data compiled by UBS AG show. Meanwhile, returns to shareholders are growing at a much slower pace, with net buybacks rising 16 percent. Dividends saw an 11 percent boost.
Read Stocks on May 5-6, 2018: outlook
Here’s what I think will happen based on my discretionary outlook.
- The S&P has made a 6%+ “small correction”. This will not turn into a “significant correction”.
- 2018 will trend higher but also be a choppy year.
- Why I’m medium-long term bullish on the stock market from a discretionary point of view.
- 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. So please take my short term thoughts with a grain of salt.
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.