*These are my discretionary thoughts on the market. My Medium-Long Term model determines my trades.
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Stock index & news
- GE is not signalling a recession.
- After outperforming in 2018, the homebuilder sector will underperform the S&P in 2018.
- Guessing the next 6%+ “small correction’s” start.
- Potential bearish trigger for the S&P 500 in late-January or February
3 pm: GE is not signalling a recession or bear market for the S&P 500.
Here’s something funny that I came across today:
“GE stock has predicted the last 2 recessions. When the 50sma crossed below the 200sma (death cross), the economy was either headed into a recession or was already to a recession. The 50sma has recently crossed below the 200sma. This signals an impending recession right now.”
This “indicator” is silly. GE used to reflect the U.S. economy and Corporate America due to the nature of its business (conglomerate). However, the recent decline in GE’s stock has nothing to do with the broader economy. GE’s stock is tanking because GE’s business is sinking, not because the U.S. economy is deteriorating. The conglomerate business model is dying. That’s why GE’s stock has cratered in 2017 despite a massive rally in the S&P 500.
4 am: Guessing the next 6%+ “small correction’s” start.
It’s impossible to consistently and accurate guess the exact start date of a 6%+ “small correction”. Nevertheless, it is worth estimating the date.
As of October 2017, the current rally is the longest rally in history without a 6%+ “small correction”. Hence, I think the S&P 500 will make a small correction in Q1 2018.
Specifically, I think the correction will begin in February 2018. Here’s why.
- The market has begun to show signs of weakening price action. Price action tends to weaken for a while before the market can correct.
- More importantly, mid-late January includes corporate earnings season. The market doesn’t always go up on earnings season, but it’s hard to fall during earnings season.
- You can see this in seasonality. February is the weakest month from October-April while January is decent (thanks to earnings season).
4 am: Potential bearish trigger for the S&P 500
I think the S&P 500’s biggest potential bearish trigger will occur in late-January or early-February 2018.
German chancellor Merkel has until mid-January to form a grand coalition with the SPD party. (Merkel led the EU through the 2010-2012 crises). If she cannot form a coalition by February, she will be forced to form a minority government. The Euro will probably selloff on this event because nobody but Merkel can save the EU during the next crisis.
News such as this usually has NO IMPACT on the U.S. stock market.
But when the S&P 500’s rally is so long in the tooth, any random bearish news can trigger a selloff. The news is nothing more than an excuse for selling.
Merkel announcing a minority government government in February might start the S&P 500’s much needed 6% “small correction”.
Here’s what I think will happen based on my discretionary outlook.
- The S&P will make a small 6%+ “small correction” in Q1 2018. This will not become a “significant correction”. The current rally is the longest one in history without a 6%+ “small correction”.
- 2018 will be much chopper than 2017. If you haven’t already, please read What will the S&P do after rising 8 consecutive months.
I do not use my discretionary outlook to trade. I remain 100% long UPRO because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets.
I have been 100% long UPRO since September 7, when the S&P was at 2465 and UPRO was at $109.3
*I also have a small Day Trading portfolio. Click here to view my day trades.