*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. I update this webpage throughout the day.
- When will the stock market top?
- Every single stock market is insanely overbought.
- The buying opportunity of a lifetime.
- Study: what happens when RSI > 80 on every single time frame
- Study: stock market volatility will rise in 2018
3 pm. When will the stock market top?
This question is on everyone’s mind. The honest answer is that nobody knows. We never found a consistently accurate way to predict tops before “small corrections”, which is why the Medium-Long Term Model only predicts “significant corrections”.
The S&P 500 is extremely overbought right now. Here’s the S&P vs its daily RSI 14.
When momentum is this overbought, any bearish news can trigger a correction.
The NAFTA renegotiation is a potential bearish trigger. Congress (Democrats and Republicans) will ultimately block Trump if Trump pulls the U.S. out of NAFTA. But in the meantime, Trump’s actions will probably cause a lot of uncertainty and market turmoil. Political uncertainty coupled with an extremely stretched rally is a dangerous recipe.
Investors and traders are heavily long U.S. equities. Thus, a tidal wave of stop losses will be triggered when the market starts to fall. The triggered stop losses will reinforce the correction’s downtrend, which is why the next correction will probably be closer to 10% than 6%.
7 am. Every single stock market is insanely overbought.
Global stock markets are going up incessantly, and this has put some cautious investors/traders on edge. Here’s the S&P 500.
Here’s the MSCI World Index
Here’s Hong Kong’s Hang Seng Index
In short, momentum around the world is EXTREMELY overbought. Today’s study demonstrated that when stock markets are extremely overbought, this tends to happen:
- Short term bullishness (i.e. bullish over the next few weeks).
- Medium term bearishness (i.e. a correction in the next few months).
- Long term bullishness (i.e. no significant correction or bear market ahead).
As a result, I still think the U.S. stock market needs to wait until January is over before it can begin a correction. Earnings season is about to start, and stocks go up/flat more often than they go down on earnings season.
This will be a correction in global stocks – not just the U.S. stock market. Stock markets around the world are highly correlated nowadays.
7 am. Buying opportunity of a lifetime.
After the S&P 500 makes a correction, that bottom will be the buying opportunity of a lifetime. The next correction fits the Volatility will rise in 2018 study.
Everyone knows that the long term outlook for the economy and stock market is wonderful. The next correction will be a “buy the dip like crazy” moment. The majority of investors know that we are in the final quarter of this bull market, but that the stock market still has room to run. So their buying will most likely cause a V-shaped correction.
This once-in-a-lifetime buying opportunity applies to non-U.S. stock markets as well. This bull market will end in a full-blown global bubble.
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. The current rally is the longest one in history without a 6%+ “small correction”.
- The S&P 500 will close higher at the end of 2018 vs the beginning of 2018.
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.