*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.
- VIX and the S&P have gone up together for the second day in a row!
- The U.S. economy is still strong. Long term bullish for the U.S. stock market.
- Margin debt as a % of GDP is rising. Not a long term concern.
4 pm: VIX and the S&P went up together for the second day in a row.
I said on Friday:
VIX and the S&P went up together today. Normally VIX and the S&P move inversely. This is not a short-medium term bearish sign unless it persists.
VIX and the S&P went up together today (2nd day in a row). This is now a potential bearish sign. Give it a few more days.
6 am: the U.S. economy is still strong. There’s nothing wrong with the bull market in stocks and the economic expansion.
The U.S. economy and stock market move together over the long term. The bull market will not end if the economy doesn’t deteriorate. And right now, there’s nothing wrong with the U.S. economy. Let’s take a look at the major economic indicators.
The U.S. unemployment rate continues to fall.
U.S. inflation is stabilizing at 2%. I expect inflation to pick up in the second half of 2018.
The ISM Manufacturing PMI is trending higher.
U.S. Industrial Production is trending higher, just like the manufacturing PMI.
Retail Sales growth is also up. Growth tends to fall before a recession and bear market. This is clearly not the case right now.
Auto sales in the U.S. are ok, despite all the talk about declining auto sales in 2017. Auto sales can plateau or fall for YEARS before a bear market and recession begin.
New Home Sales are surging.
Since the U.S. economy is ok, investors and traders shouldn’t be worried about a bear market in equities. Our Medium-Long Term Model confirms this.
6 am: Margin debt as a % of GDP is rising. This is not a long term concern.
Real margin debt as a % of real GDP is rising to new all-time highs.
This chart looks chart, doesn’t it? Margin debt now exceeds the previous highs before the stock market topped in 2000 and 2007. This chart implies that a bear market is right in front of is.
Investors and traders shouldn’t be too concerned. Examine the vertical axis. From 2008-present, Real Margin Debt as a % of GDP went from 1.5% to 3%. This is hardly “excessive” or “crash-inducing”. It’s not as if margin debt was 10% or 20%, which would be worrisome. Over the long run, margin debt and the S&P 500 will forever move in sync. (Investors & traders like to maintain a steady long-term margin-to-cash buying ratio).
This indicator is pretty useless for picking bull market tops. The long term average for Real Margin Debt as a % of the S&P 500 has been significantly higher since 1995. It has not come down to pre-1995 levels. So anyone who used this indicator to invest in stocks would have been in 100% cash since 1995, while the S&P 500 has soared over the past 22 years.
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”.
- 2018 will be much chopper than 2017. If you haven’t already, please read Are financial conditions “too easy”.
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.