Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish

Stock-Markets / Stock Markets 2018 Jun 10, 2018 - 01:34 PM GMT

By: Troy_Bombardia

Stock-Markets

As always, the economy’s fundamentals determine the stock market’s medium-long term outlook. Technicals determine the stock market’s short-medium term outlook. Here’s why the stock market could pullback for 1-2 weeks, but the medium term is bullish.

Let’s go from the long term, to the medium term, to the short term.

Long term is bullish

The Medium-Long Term Model states that there is no “significant correction” or bear market for U.S. equities on the horizon.


Last week I wrote about Stock market’s downside is limited, medium-long term is bullish. Not much has changed about the U.S. economy – it is still improving at a decent pace.

The economy and stock market move in the same direction in the medium-long term. A growing economy = medium-long term bullish for the stock market.

For starters, we can see that the current equities bull market and economic expansion don’t have many years left. Corporate Unit Profits have been down since late-2014. Corporate Unit Profits tend to peak in the middle of an economic expansion cycle.

The economy is getting close to “full employment” (max potential), but is not quite there. There is still some room left to run. The Unemployment Rate – CPI tends to reach zero before a recession and equities bear market starts.

The following indicators demonstrate that the economy has yet to deteriorate and is still improving, which means that the stock market’s bull market still has some room to run.

Initial Claims and Continued Claims are still trending lower. Job Openings (JOLTS) are still trending higher. Notice how these 3 economic indicators lead the stock market.

Heavy Truck Sales continue to trend higher. Another medium-long term bullish sign for the stock market and economy since this is a leading indicator.

Foreign buyers are turning bullish on U.S. equities, but aren’t bullish enough. We typically see an explosion in foreign buying during the last few quarters of a bull market. Keep in mind that this data series is not adjusted for inflation, so nominal foreign buying this time should exceed previous peaks.

Medium Term Bullish

Various studies that we did this week suggest that the stock market (S&P 500) will make new all-time highs in the coming months.

For starters, both the NASDAQ and Russell 2000 have massively outperformed the S&P 500 from January-May. This is historically a bullish sign for the S&P 500 from June-December (i.e. rest of the year).

As a result, the cumulative A/D line continues to make a bullish breadth divergence with the S&P 500.

VIX (volatility index) has done a roundtrip in the meantime, going from a very low level, to spiking in February 2018, back down to a very low level. The forward returns 6 months later are mostly bullish, with 1 loss being very small (-0.87%).

And lastly, the Fed is expected to hike interest rates next week. The stock market tends to go up while the Fed is hiking interest rates. The stock market usually goes up for a few months after the Fed stops hiking interest rates. Next Wednesday’s rate hike will not be the last in this rate hike cycle.

Short term bearish

The stock market’s short term (i.e. next 1-2 weeks) leans towards the bearish side.

For starters, the stock market has not reacted bullishly in the short term to rate hikes in the current rate hike cycle. This bearish edge goes away after 1 month.

And as mentioned, VIX is rather subdued right now, which makes a short term pop in VIX and short term decline in the S&P 500 possible. See 2 weeks forward returns for the S&P.

In addition, the stock market has gone up 3 weeks in a row. 1 week forward returns are worse than random (random = up on 60% of random weeks).

Keep in mind that the stock market can play out a “short term bearish” scenario using a consolidation instead of a pullback.

I like to focus on the medium-long term. Getting the medium-long term right isn’t hard. But I’ve seen plenty of cases in which the short term leaned bearish but the stock market kept on going up. The stock market has a natural bullish bias – it goes up more often than it goes down. Bears have a statistical disadvantage in the stock market.

Conclusion

  1. The long term is bullish. January 2018 was not this bull market’s top.
  2. The medium term is bullish. The stock market will probably trend higher over the next few months. This study suggested that the stock market will make a new high before summer 2018 is over.
  3. The stock market’s short term is slightly bearish

Focus on the medium-long term. Have a great weekend, and please share this on social media!

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in