U.S. stock market on June 9, 2017: thoughts and outlook


*These are our short term thoughts on the market. We combine our medium-long term model and discretionary outlook when making investment decisions. We’re looking at how the market reacts to news, earnings, and other fundamental themes related to the key individual sectors.
Go to our homepage for our latest market outlook.

Stock index & news

Tech.
Today’s big news was the tech sector’s (and FAANG) mini-crash while more traditional sectors (finance, energy, industrials, healthcare) rallied.
This is interesting because previously, tech led the S&P’s rally while the energy and financial sectors lagged significatly.

  1. It’s common for tech to fall more than large cap (Dow) when the Dow is falling as well.
  2. It’s very rare to see tech get crushed while the Dow rallies.

We conducted a study to see what happens when the Dow rises while XLK (tech sector ETF) falls more than 2.4%.
The results were meaningless. This was a very rare signal and only happened in 1999-2002 (i.e. last leg of bull market and then the subsequent bear market). So don’t read too much into today’s divergence.
Click here to read the results.
Let’s ignore this for now.
A lot of investors, hedge funds, and banks think that the U.S. stock market will begin a small correction this summer.
For example, JPMorgan just said that they think the S&P will top this summer.
This has us worried. We don’t like it when too many people think the same way. We were among the first to say that the S&P 500 will most likely make a small correction this summer. This is solely because the current “small rally” is becoming really aged.

  1. The current small rally has lasted 242 trading days.
  2. However, the longest historical “small rally” lasted 335 trading days.

By extrapolating the historical maximum (335 trading days), this means that the S&P doesn’t have to begin a small correction this summer. It can begin a small correction in September or October 2017.
So from a contrarian standpoint, perhaps the S&P’s “small rally” will not top this summer. Perhaps it will top this fall. Who knows.
Some people see the tech sector’s selloff and finance/energy rally as “the great rotation” (i.e. bullish for stocks in the medium term). Others see it as a bearish sign: “the tech led rally is finally coming to an end”. Historically speaking, both are correct 50% of the time.
In other words, ignore this.
UK.
When investing, it’s important to separate the meaningful news from the irrelevant news. The UK’s election has no impact on the S&P 500 in the medium term. Ignore it. This isn’t the Brexit referendum.
June 23.
The House Intel Committee told Trump to hand over the Comey tapes “it they exist” by June 23.  Based on yesterday’s reaction, the stock market will probably ignore these tapes.

Bottom line

Not a lot has changed. Perhaps the S&P will begin a small correction now. That is just a wild and meaningless guess. No one can consistently and accurately predict the top before “small corrections”.
Right now:

  1. Our model says that this is a big rally in a bull market.
  2. We’re still sitting on 100% cash. Here’s why.
  3. We’re waiting for the next 6%+ small correction.

Our model produces a value from 0 to 100. The closer the value is to 100, the closer the model is to predicting a significant correction or a bear market. The model predicts a significant correction or bear market when the value hits 100.
Click below to find out our model’s value right now. If you don’t have social media, feel free to contact us and we’ll email you with our model’s value.
Our model’s value is 36 as of June 9, 2017. This means that the next significant correction is still far away. The model is updated daily.

Sectors

Energy.
The energy sector went up a lot while oil prices went up a little. This is the great rotation. Investors are shifting from assets that have rallied to assets that have been crushed over the past few months. Investors shifted from tech (-2.4%) to energy (+2.4%).
Here’s XLE (energy sector ETF).

Finance.
Like energy, the financial sector rallied significantly today while interest rates went up a little. XLF (finance ETF) is up +1.8% while XLK (tech) fell -2.4%.
Here’s XLF.

Tech
After a massive medium-term rally, the tech sector got crushed today. Here’s XLK (tech ETF).

FAANG stocks in particular got killed.
Here’s Facebook.

Here’s Amazon.

Here’s Apple.

4 comments add yours

  1. Hey Troy, just wanted to agree with Gary and say thanks for what you’re doing. Keep those emails coming, it reminds me to return here so I can see your latest thoughts on the market.
    I personally expect a correction this summer, especially after recent events. I will look at banks since they are rallying but likely shift into some more defensive type stocks just in case.

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