Stocks on September 8, 2018: 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.
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. The U.S. stock market is in a rare falling flag pattern. Here’s what this means for the stock market.
  2. The options index Put/Call ratio spiked. Here’s what this means for the stock market.
  3. The Fed is tapering very slowly to prevent a big decline in the financial markets.
  4. Silver’s crash is unprecedented.
  5. The U.S. stock market’s divergence from the rest of the world (and emerging markets) is unprecedented.

Read The stock market’s weak start this September is like 1987, 1991, and 2001?
1 am: The U.S. stock market is in a rare falling flag pattern. Here’s what this means for the stock market.
The U.S. stock market is in a rare falling flag pattern. Over the past 6 days, each day’s HIGH has been below the prior day’s HIGH and each day’s LOW has been below the prior day’s LOW.

These falling flag patterns are rare because they represent very controlled selling. This has only happened 3 other times, and they were all in the 1950s. Here’s what the S&P did next.

*Be mindful of extremely low sample size statistics. I wouldn’t put too much emphasize on this study.
1 am: The options index Put/Call ratio spiked. Here’s what this means for the stock market.
The options index Put/Call ratio spiked last Friday. Over the past year, this spike has marked short term bottoms in the stock market.


1 am: The Fed is tapering very slowly to prevent a big decline in the financial markets
Every now and then there are these fears that the Fed’s tightening will kill the stock market.

  1. The exact same thing was said in 2013 when the Fed announced tapering. The stock market has soared since then.
  2. The exact same thing was said in 2014 when the Fed stopped QE. The stock market has soared since then.

The simple reality is that the Fed is tightening monetary policy VERY SLOWLY – too slowly to hurt the financial markets. The Fed may be unwinding its balance sheet, but is doing so in an extremely slow manner.

1 am: silver’s crash is unprecedented
2 weeks ago I posted a study “what happens next to gold and silver when silver falls 11 out of the past 12 weeks“.

Silver has fallen again this week, and is now down 12 out of the past 13 weeks! This has never happened in history before.

*”Unprecedented” is neither bullish nor bearish. It just means that this hasn’t happened before.
1 am: The U.S. stock market’s divergence from the rest of the world (and emerging markets) is unprecedented.
The U.S. stock market has completely decoupled from emerging markets and foreign stock markets since May. Foreign stock markets are sinking under the weight of Trump’s trade war.

MSCI World (ex-U.S.) has fallen 9 out of the past 16 weeks while the S&P 500 has gone up 12 out of the past 16 weeks. This kind of divergence is unprecedented.
*”Unprecedented” is neither bullish nor bearish. It just means that this hasn’t happened before.
Read Stocks on September 7, 2018: outlook

Outlook

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

  1. 2018 will trend higher but will also be a choppy year.
  2. The S&P 500 has approximately 1 year left in this bull market (bull market top sometime in 2019).

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 big correction at this point in time. I ignore small corrections. I only sidestep big 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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