Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18
Will Weak US Dollar Save Gold? - 7th Dec 18
This Is the End of Trump’s Economic Sugar High - 7th Dec 18
US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - 7th Dec 18
The Secret Weapon for Getting America 5G Ready - 7th Dec 18
These Oil Stocks Are a Ticking Time Bomb - 7th Dec 18
How Theresa May Put Britain on the Path Towards BrExit Civil War - 7th Dec 18
How easy is it to find a job in the UK iGaming industry? - 6th Dec 18
Curry's vs Jessops - Buying an Olympus TG-5 Tough Camera - 5th Dec 18
Yield Curve Harbinger of Stock Market Doom - 5th Dec 18
Stock Market Crashed While the Yield Curve Inverted - 5th Dec 18
Global Economic Outlook after Trump-Xi Trade War Timeout - 5th Dec 18
Stock Market Dow Plunge Following Fake US - China Trade War Truce - 5th Dec 18
Subverting BREXIT - British People vs Parliament Risks Revolution - 5th Dec 18
Profit from the Global Cannabis Boom by Investing in the Beverage Industry - 4th Dec 18
MP's Vote UK Government Behaving like a Dictatorship, in Contempt of Parliament - 4th Dec 18
Isn't It Amazing How The Fed Controls The Stock Market? - 4th Dec 18
Best Christmas LED String and Projector Lights for 2018 - Review - 4th Dec 18
The "Special 38" Markets You Should Trade ebook - 4th Dec 18
Subverting BrExit - AG Confirms May Backstop Deal Means UK Can NEVER LEAVE the EU! - 3rd Dec 18
The Bottled Water Bamboozle - 3rd Dec 18
Crude Oil After November’s Declines - 3rd Dec 18
Global Economic Perceptions Are Shifting - Asia China Markets Risks - 3rd Dec 18
Weekly Charts and Update on Equity Markets, FX Trades and Commodities - 3rd Dec 18
TICK TOCK, Counting Down to the Next Recession - 3rd Dec 18
Stock Market Key (Short-term) Support Holds - 3rd Dec 18
Stocks Bull Market Tops Are a Process - 3rd Dec 18
More Late-cycle Signs for the Stock Market and What’s Next - 3rd Dec 18
A Post-Powell View of USD, S&P 500 and Gold - 2nd Dec 18
Elliott Wave: SPX Decision Time Is Coming Soon - 2nd Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

Things You Should Know About the Last Year of this Stocks Bull Market

Stock-Markets / Stock Markets 2018 Aug 24, 2018 - 10:20 AM GMT

By: Troy_Bombardia

Stock-Markets

Now that the S&P 500 has made a new all-time high, we can put the January-February 2018 “small correction” behind us and focus on what lies ahead.

For starters, the S&P 500’s forward returns are pretty bullish (see study).


Now let’s get into the details. My recent tweet sums up my market outlook going into 2019.

Based on where the Medium-Long Term Model is today, the bull market’s top is going to be somewhere in mid-2019. This is a MOVING target. The target date will move as new data comes in. But the key point is that we should have smooth sailing for the next 6-9 months.

Why this is shaping up to be more like 2000 than 1929

Gray Cardiff has a very interesting stock market valuation indicator. This valuation indicator is the ratio of the S&P 500 to the median home price in the U.S.

As you can see, the stock market is getting close to the “high risk zone”. However, it is important to note that this indicator is not a medium term market timing tool. In previous cases in which this indicator reached 2.0, the stock market trended higher for months and sometimes years.

I find it particularly interesting that for the 2 historical cases in which this indicator exceeded 2.0 (1929 and 1998), the stock market made a blow off top. It SOARED in the final 1-1.5 years of its bull market.

Can the same thing happen again? I certainly think so. The S&P 500 rallies 10%+ per year in the final year of its bull market (i.e. leading up to 1968 top, 1973 top, 2000 top, 2007 top).

  1. The S&P increased 13.8% leading up to the December 1968 top.
  2. The S&P increased 21.5% leading up to the January 1973 top.
  3. The S&P increased 12% leading up to the September 2000 top.
  4. The S&P increased 14.8% leading up to the October 2007 top.

In the markets, the least expected thing sometimes does occur. It would not surprise me if valuations reach or exceed the dot-com bubble before this bull market peaks.

Imagine that. After the worst financial crisis in 80 years (GFC), who would have thought we’d get the biggest bubble in the past 100 years? But that’s the way the world works. Sometimes the least expected things happen.

When this bull market is over, I think we’re going to see a 2000-2002 style bear market instead of a 1929-style crash. My writeup explains the historical environment behind 1929, and why such a crash is unlikely to happen again.

The stock market is more volatile

With that being said, the final 1-1.5 years of this bull market will probably be very choppy. We will not have a repeat of 2017, when the market went up nonstop. That means momentum will not return to January 2018’s high, although price will make new highs.

Historically, the final year before a bull market ends (bear market begins) is always very choppy.

This the S&P 500 and its weekly RSI in 2007. Notice how volatile the S&P was. Notice the weekly bearish divergence.

This the S&P 500 and its weekly RSI in 1999 and 2000. Notice how volatile the S&P was. Notice the weekly bearish divergence.

This the S&P 500 and its weekly RSI in 1972. Notice how volatile the S&P was. Notice the weekly bearish divergence.

This the S&P 500 and its weekly RSI in 1968. Notice how volatile the S&P was. Notice the weekly bearish divergence.

There are 2 things to be said about this increase in volatility.

For starters, VIX (the volatility index) tends to go up with the stock market.

This means that going long VIX from time to time is not a bad idea.

But here’s the 2nd and more important point. In a year when the stock market rallies incessantly (e.g. 2017), the best thing to do is buy and hold. If you go long and short (as most traders do), your short positions will probably get annihilated.

But in a year like 2018 in which the stock market is very choppy, going long AND short is a profitable trading strategy. A market that’s choppy is conducive to making money on both the long side and short side.

  1. You buy.
  2. The stock market goes up. You sell at a profit.
  3. Your short.
  4. The stock market goes down. You close your short at a profit.
  5. Rinse and repeat.

Remember: different market environments are more supportive of different trading strategies.

What I’m worried about

Besides the Medium-Long Term Model, I’m primarily looking for signs of a sustained deterioration in the economy. The economy moves in the same direction as the stock market in the medium-long term.

The economy’s primary problem right now is that it is too perfect. Although there is still some room left in the economic expansion, there isn’t a lot of room left. This means that although the bull market has room to run, there isn’t a lot of room left.

Initial Claims is Exhibit A for this problem. Look how low Initial Claims are right now.

Initial Claims tends to trend higher before bull markets top (see trading model). I’m watching out for a consistent rise in Initial Claims. Initial Claims are very low right now, which means that it can start to trend higher at any time.

Conclusion

So there you have it. Be bullish, but be alert for a change in the market’s winds.

Click here for more market studies.

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.


© 2005-2018 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

6 Critical Money Making Rules