Stocks on November 22, 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. Conference Board’s Leading Economic Index continues to trend higher. Medium term bullish for the stock market.
  2. Housing Starts is trending sideways. Not a long term concern for the stock market yet, but will be in 2019 if Housing Starts begin to trend downwards.
  3. Building Permits is trending downwards. Not a long term concern for the stock market yet, but will be in 2019 if this continues.
  4. Initial Claims is starting to trend sideways. Not long term bearish for U.S. stocks yet, but will be bearish in 2019 if Initial Claims start to trend upwards.
  5. Continued Claims are still trending downwards. Still medium term bullish for the U.S. stock market.

1 am: Conference Board’s Leading Economic Index continues to trend higher. Medium-long term bullish for the stock market.
In times of market turmoil, it’s important to remember the stock market’s long term and medium term direction. That way you don’t become confused by the short term fluctuations.
The Conference Board’s Leading Economic Index continues to trend higher. Historically, this was a long term bullish sign for the stock market. The Leading Economic Index trended lower before bear markets and recessions started.

Equally useful is the ratio of Leading to Coincident Economic Indicators, which flattens or trends downwards before recessions and bear markets begin.

1 am: Housing Starts is trending sideways. Not a long term concern for the stock market yet, but will be in 2019 if Housing Starts begin to trend downwards.
The latest reading for Housing Starts went up from its previous reading (1210k to 1228k). However, the key point is that Housing Starts are starting to trend sideways.
This is not yet a long term bearish factor for the stock market, but will be in 2019 if housing starts begin to trend downwards (which hasn’t happened yet).

The economy and stock market move in the same direction over the long run. Housing is a leading indicator for the U.S. economy, which makes it a long term leading indicator for the stock market.

This chart demonstrates how Housing Starts leads the S&P 500.

1 am: Building Permits is trending downwards. Not a long term concern for the stock market yet, but will be in 2019 if this continues.
The latest reading for Building Permits went down from its previous reading (1270k to 1263k). However, the key point is that Building Permits are starting to trend downwards.
This is not yet a long term bearish factor for the stock market, but will be in 2019 if this continues.

The economy and stock market move in the same direction over the long run. Housing is a leading indicator for the U.S. economy, which makes it a long term leading indicator for the stock market.

This chart demonstrates how Building Permits leads the S&P 500.

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 221k to 224k). While Initial Claims have mostly been trending lower throughout 2018, 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 down a little (from 1.670 million to 1.668 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 has less than 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 19, 2018: outlook

Outlook

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

  1. The S&P 500 has less than 3 quarters 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 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.