*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.
- The stock market’s hourly RSI is overbought. The stock market will either make a pullback or consolidate for the next few days.
- Real wage growth is stagnant. NOT bearish for the stock market and economy.
- Net earnings revisions are still positive. Medium-long term bullish sign for the stock market.
- Banks’ lending standards continue to ease. Medium-long term bullish for the stock market.
Read Study: a short term consolidation is more likely than a pullback
1 am: The stock market’s hourly RSI is overbought. The stock market will either make a pullback or consolidate for the next few days.
The S&P 500 has surged over the past few days, causing its hourly RSI (a momentum indicator) to become “overbought”.
Throughout the course of this correction (January 2018 – present), whenever hourly RSI became this overbought, the S&P either made a pullback or swung sideways. In other words, short term bearish.
I think a sideways consolidation pattern is more likely because earnings season is just around the corner.
1 am: Real wage growth is stagnant. NOT bearish for the stock market and economy.
Real wage growth (inflation-adjusted) has been nonexistent throughout most of the current bull market and economic expansion. Bears say this means that the economic recovery and bull market in stocks are “fake”.
Except that they’re wrong. Real wage growth has been virtually stagnant for the past 40 years. Meanwhile, the stock market and economy have consistently trended higher over the past 40 years.
There is zero correlation between the stock market and real wage growth. Wage growth is neither a leading nor lagging indicator for the stock market. It’s irrelevant.
1 am: Net earnings revisions are still positive. Medium-long term bullish sign for the stock market.
The S&P 500’s net earnings revisions are still significantly positive.
The S&P 500’s Net Earnings Revisions turns negative before economic recessions and equity bear markets begin. During economic expansions, it has shown mixed performances because analysts tend to downgrade their earnings expectations as the year goes on. That’s why negative Net Earnings Revisions is a necessary but not sufficient requirement for equities bear markets and economic recessions.
Net Earnings Revisions is far from negative right now. A bear market has not begun, and nor is one imminent.
1 am: Banks’ lending standards continue to ease. Medium-long term bullish for the stock market.
Banks’ lending standards are still easing.
Easing lending standards is a medium-long term bullish sign for the stock market and economy. It gives this aged economic expansion a little more juice via easier loans and more credit.
As you can see, lending standards tend to get tighter in the last rally of a bull market.
Read Stocks on July 9, 2018: outlook
Here’s what I think will happen based on my discretionary outlook.
- 2018 will trend higher but will also be a choppy year.
- The S&P 500 has approximately 1-2 years left in this bull market.
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.