Stocks on November 15, 2018: fundamental outlook


*Go to the blog for my latest market outlook. Members can go here to see our trading model’s latest updates and how we’re trading the U.S. stock market right now based on these models.
The economy and stock market move in the same direction in the medium-long term. Hence, leading economic indicators are also leading indicators for the stock market.

Thoughts

  1. Inflation-adjusted Retail Sales are still trending higher. The bull market in stocks probably isn’t over.
  2. Freight Transportation Services is trending sideways. Not a bearish sign for the stock market, but watch out IF it starts to fall.
  3. Initial Claims is starting to trend sideways. Not yet long term bearish for U.S. stocks, but will be bearish in 2019 if Initial Claims start to trend upwards.
  4. Continued Claims are still trending downwards. Still medium term bullish for the U.S. stock market.

Read Active managers are bearish on stocks. A bullish contrarian sign
1 am: Inflation-adjusted Retail Sales are still trending higher. The bull market in stocks probably isn’t over.
Thursday’s reading for inflation-adjusted Retail Sales went up a little. However, the key point is that inflation-adjusted Retail Sales are still trending higher.

This suggests that the equities bull market is not over because inflation-adjusted Retail Sales typically trend sideways before an equities bear market or economic recession begins.

This chart demonstrates the positive correlation between the S&P 500 and Retail Sales.
1 am: Freight Transportation Services is trending sideways. Not a bearish sign for the stock market, but watch out IF it starts to fall.
The Freight Transportation Services Index measures the volume of the movement of freight in the U.S. This indicator tends to flatten or fall before an equities bear market or economic recession begins.

The latest reading for the Freight Transportation Services Index fell a little from its previous reading. While Freight Transportation Services were mostly trending upwards, they are now starting to trend sideways.
This isn’t a bearish sign for the stock market. But if Freight Transportation Services start to trend downwards over the next few months, then this will be a long term bearish sign.

1 am: Initial Claims is starting to trend sideways. Not yet long term bearish for U.S. stocks, but will be bearish in 2019 if Initial Claims start to trend upwards.
Yesterday’s reading for Initial Claims went up a little from its previous reading (from 214k to 216k). While Initial Claims have mostly been trending lower, they are now starting to trend sideways right now.

*Initial Claims lead the economy and stock market. Historically, it trends higher before a bear market in stocks started (see study).

This suggests that the bull market in stocks is not over because Initial Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Initial Claims are very low right now (historically speaking).
At such low levels, Initial Claims will probably trend upwards in 2019.

1 am: Continued Claims are still trending downwards. Still medium term bullish for the U.S. stock market.
Yesterday’s reading for Continued Claims went up (from 1.63 million to 1.676 million). However, the key point is that Continued Claims are still trending lower right now.

Like Initial Claims, Continued Claims lead the stock market and economy.
This suggests that the bull market in stocks is not over because Continued Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Continued Claims are very low right now (historically speaking). We are trying to catch the bull market’s top because the bull market most likely only has 1 year left.

This chart demonstrates the inverse correlation between the S&P 500 and Continued Claims. A downwards trending Continued Claims = medium-long term bullish for the stock market.

Read Stocks on November 13, 2018: outlook

Outlook

Here’s what I think will happen based on our discretionary outlook:

  1. The S&P 500 has less than 1 year left in this bull market (bull market top sometime in Q2 2019).
  2. The recent decline is just a correction in a bull market. The medium term direction is still bullish  (i.e. trend for the next 6-9 months)

Our discretionary outlook is usually, but not always, a reflection of how we’re trading the markets right now. We trade based on our clear, quantitative trading models, such as the Medium-Long Term Model.
Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.

4 comments comments closed

  1. Matt, are you suggesting that ,despite Troy’s studies, we are unlikely to see a new high and we should be selling into strength?…..Thanks, Tony

  2. Matt, I don’t know, sincerely.
    “The only real truth is price and time” yes, I agree. But this tells us nothing about the future, it simply tells that this price is the right time for this very moment.
    So the following sentence “Price action is telling us that the 2017 funds accumulation phase is over” is speculation, in my opinion. Why today prices are telling you this and not the opposite?
    Matt, Troy, I am wondering if Technical Analysis is a real science, after all.
    Just one example: the “double top” is usually meant as a bearish signal. But is it? Has this assumpion ever been tested? Does it work for 70% cases or more?
    If there are consinstent studies saying that it does, then I will believe it is a real thing.

    • Technical analysis by looking at a chart works perfectly with 20/20 hindsight. It “looks” like a double top, until the market makes a new high.

  3. Thanks, Matt. In my uneducated view, I find orderly successive lower lows and lower highs over the past couple of weeks concerning to say the least. I worry about getting caught holding the bag if I don’t sell into the next rally.