Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Defensive Stock Sectors Outperforming, Just Like During the Dot-com Bubble

Stock-Markets / Stock Markets 2018 Nov 15, 2018 - 06:25 AM GMT

By: Troy_Bombardia

Stock-Markets

We’re seeing something very interesting right now. Most of our long term market studies are still bullish, but several are turning bearish. This is typically what happens in the last year of a bull market, when the market slowly starts to roll over into a bear market. (Remember that “slowly rolling over” includes plenty of up and down volatility).

Let’s determine the stock market’s most probable direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.


*Probability ≠ certainty.

Consumer Staples are outperforming

Consumer Staples is a defensive sector that outperforms during times of market stress.

However, it’s not common for Consumer Staples to go up significantly while the stock market falls. Consumer Staples has gone up since October while the broad stock market (S&P 500) has fallen.

Here’s the S&P 500.

Here’s XLP.

Here’s what happens next to the S&P 500 (historically) when XLP goes up more than 7% in the past month while the S&P 500 falls.

*Data from 1998 – present

As you can see, this is definitely a sign of late-cycle behavior for the stock market. During the 1990s bull market, this first happened in April 2000. The stock market rallied over the next 5 months before falling off a cliff.

NAMO

NAMO is the NASDAQ’s McClellan Oscillator (breadth indicator). It fell from more than +60 to less than 0 in 1 week, which is a very rapid downwards reversal.

Going into this study, I thought that this would be a short term bearish factor for the U.S. stock market.

It isn’t.

Here’s what happened next to the S&P 500 when NAMO went from more than 60 to less than 0 in 1 week.

Interestingly enough, the stock market does well over the next 6-12 months.

Lots of volatility

The stock market has been very volatile over the past 1.5 months. Volatility is mean-reverting and generally moves in the opposite direction of the stock market.

Here’s what happens next to the S&P 500 when there have been 6 or more +1.9% and -1.9% days in the past 30 days.

*Data from 1950 – present

As you can see, the stock market tends to do well over the next 2 months, but returns start to deteriorate after 9 months. This fits with our “bull market top in Q2 2019” theme.

Will tech start to outperform large caps?

After outperforming large caps for most of this year, tech has underperformed significantly over the past few months. As a result, the Dow:NASDAQ ratio has gone up significantly.

Here’s what happens next to the Dow:NASDAQ ratio (historically) when the ratio is more than 5% above its 200 day moving average.

As you can see, the ratio has a tendency to fall over the next 6 months, which suggests that tech (NASDAQ) will outperform large caps (Dow).

Oil is not looking good

Oil has gone down 11 days in a row, a record loss streak. Here’s a better way to look at oil.

If oil doesn’t rise this week, it’ll be below its lower weekly Bollinger Band (20 sma, 2 standard deviations) for 3 consecutive weeks.

Here’s what happened next to oil (historically) when it was below its lower Bollinger Band for 3 consecutive weeks.

*Data from 1983 – present

As you can see, this is not a medium term bullish sign for oil. Oil will probably bounce and then head lower (i.e. a momentum divergence).

Watch out in 2019

Goldman thinks that the S&P 500’s earnings growth will fall significantly in 2019 and 2020.

This isn’t bearish on its own. There were plenty of bull market years (e.g. 2012-2016) in which the S&P saw single-digit profit growth. However, this is a long term bearish sign considering that we are this late in the bull market’s cycle. The next decline in earnings growth will probably result in negative earnings growth (i.e. the end of the bull market).

Tariffs

There are plenty of things to worry about in 2019, but tariffs aren’t one of them. According to CNBC, tariffs are having a negative impact on only about 9% of companies.

Click here to see yesterday’s market study

Conclusion

Our discretionary technical outlook remains the same:

  1. The current bull market will peak sometime in Q2 2019.
  2. The medium term remains bullish (i.e. trend for the next 6-9 months).
  3. The short-medium term leans bearish. There’s a >50% chance that the S&P will fall in the next few weeks.

Focus on the medium term and long term. The short term is usually just noise.

Our discretionary outlook is usually, but not always, a reflection of how we’re trading the markets right now. We trade based on our clear, quantitative trading models, such as the Medium-Long Term Model.

Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.

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.


© 2005-2019 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

6 Critical Money Making Rules