*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.
- April was probably the stock market’s bottom. Momentum became very oversold in April.
- The road to a new all-time high won’t be easy. It’ll probably take at least a month.
- Buybacks are still far below 2007-levels. Not a sign that the equities bubble today = the equities bubble of the 2000s.
- The stock market usually goes up when the Fed is hiking rates.
Read Study: what happens next when the stock market goes up 8 days in a row
2 am: April was probably the stock market’s bottom. Momentum became very oversold in April.
Weekly momentum indicators are useful for predicting medium term turning points in the stock market. The S&P 500’S 14 weekly Stochastic became very oversold in early-April 2018. Except 1 case in 2011, this was a medium term bullish sign for the stock market.
1 am: The road to a new all-time high won’t be easy. It’ll probably take at least a month.
The Russell 2000 (small cap stocks) is approximately 0.5% below its all time high, whereas the S&P 500 (mid/large cap) is approximately 5% below its all time high. (In other words, small cap is leading mid/large cap).
When this happened (historically), it took the S&P 500 at least 1 month (21 trading days) to make a new all time high. This means that the S&P won’t rally straight away to new all time highs: it’ll make some pullbacks along its rally.
This is logical. If Russell (small cap) is leading the rally, then it’ll eventually hit a resistance somewhere and lead the S&P 500’s pullback.
1 am: Buybacks are still far below 2007-levels. Not a sign that the equities bubble today = the equities bubble of the 2000s.
Permabears love anything that resembles 2007 (the start of the last bear market). That’s why they’re pointing to this estimate:
The nominal value of corporate buybacks in 2018 will probably = the nominal value of corporate buybacks in 2007
But once again the permabears make 3 simple mistakes:
- The nominal value of corporate buybacks is meaningless. Real (inflation-adjusted) buybacks are still 20% below their 2007 peaks.
- Corporations are making much more money today than they were in 2007. The stock market’s capitalisation is much higher today than it was in 2007.
- There is nothing inherently evil about corporate buybacks.
In fact, buybacks as a % of market cap are not even close to 2007-levels.
1 am: The stock market usually goes up when the Fed is hiking rates.
Contrary to popular belief, the stock market usually goes up during a rate hike cycle. We demonstrated that in a previous study. You can also see it in the following chart.
Notice how the stock market goes up more often than it goes down during a rate hike cycle. This is inherently logical. The Fed usually hikes rates when the economy is growing. A growing and improving economy is bullish for the stock market.
Read Stocks on May 12-13, 2018: outlook
Here’s what I think will happen based on my discretionary outlook.
- The S&P has made a 6%+ “small correction”. This will not turn into a “significant correction”.
- 2018 will trend higher but 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 significant correction at this point in time. I ignore small corrections. I only sidestep significant 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.