Stocks on October 19, 2018: outlook


*These are my discretionary thoughts on the market. My Medium-Long Term model determines my trades. Go to the blog for my latest market outlook.
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-long term bullish for the stock market.
  2. Labor market conditions remain bullish for the stock market
  3. JOLTS made a new high and is still trending higher. Bullish for stocks.
  4. Initial Claims are still trending downwards. But watch out if this starts to trend upwards.
  5. Continued Claims are still trending downwards. But watch out if this start to trend upwards.

Read Here comes the stock market’s retest
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.
*Latest reading was released yesterday. It increased from the previous reading.

1 am: Labor market conditions remain bullish for the stock market
The Kansas City Fed creates a Labor Markets Conditions Index, which is turned into a momentum indicator. This measures the strength of the labor market.
The U.S. labor market is healthy right now. This is a medium-long term bullish sign for the stock market right now. You can see the labor market conditions fell to zero at the top of previous bull market peaks.

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.
1 am: JOLTS made a new high and is still trending higher. Bullish for stocks.
The latest reading for Job Openings went up a little from its previous reading. But more importantly, Job Openings are still trending higher.

This confirms the medium-long term bullish sign in Initial and Continued Claims. JOLTS is a leading indicator for the stock market and economy. This chart demonstrates the positive correlation between JOLTS and the S&P 500. An uptrend in JOLTS = an uptrend in the S&P 500.

1 am: Initial Claims are still trending downwards. But watch out if this starts to trend upwards.
Yesterday’s reading for Initial Claims went down a little from its previous reading (from 215k to 210k). But the key point is that Initial Claims are still trending lower right now.

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

We use Initial Claims data in these 2 trading models (here and here). These 2 trading models state that you should be long stocks right now because Initial Claims data is still trending downwards.
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). We are trying to catch the bull market’s top because the bull market most likely only has 1-2 years left.

1 am: Continued Claims are still trending downwards. But watch out if this start to trend upwards.
Yesterday’s reading for Continued Claims made a new low for this economic expansion. 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 1-2 years 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 October 16, 2018: outlook

Outlook

Here’s what I think will happen based on my discretionary outlook.

  1. The S&P 500 has less than 1 year left in this bull market (bull market top sometime in 2019).
  2. I will scale out of my long positions throughout 2019 (see why)

I am 67% long SSO right now (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a big correction or bear market at this point in time. (This is a step down from being 100% long SSO previously). I ignore small corrections. I only sidestep big corrections and bear markets.
The Medium-Long Term Model has been bullish since February 8, 2016 – present. I have been long the S&P 500 since September 7, 2017 when it was at 2465.

1 comment add yours

  1. I don’t think it’s that simple Matt. It takes an average of 10-12. Sometimes less, sometimes more.

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