Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

A Stock Market Rally With No Pullbacks. What’s Next for Stocks

Stock-Markets / Stock Markets 2019 Feb 13, 2019 - 05:27 PM GMT

By: Troy_Bombardia

Stock-Markets

In a rally with no pullbacks, the S&P 500 has finally closed above its 200 day moving average (slightly).


Go here to understand our fundamentals-driven long term outlook.

Let’s determine the stock market’s most probable medium term 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.

*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are blindly “guessing” the future.

No pullbacks

There have been no meaningful pullbacks during the stock market’s rally, leaving many traders sitting on the sidelines.

The S&P has rallied more than 15% over the past 33 days, while experiencing only two -1% daily losses.

Similar no-pullback rallies happened in:

  1. August 2009
  2. November 1998 (after the -20% decline)
  3. June 1997
  4. February 1987
  5. December 1962
  6. July 1955

*Data from 1950 – present

The stock market’s 2 month and 6 month forward returns were quite bullish

Breakout

The S&P 500 closed above its 200 day moving average, albeit just barely. This breakout occurs after the S&P was deeply oversold in December 2018.

Here’s what happens enxt to the S&P when it closes above its 200 dma, after being more than -14% below its 200 dma sometime in the past 3 months.

*Data from 1950 – present

As you can see, the stock market’s 3-12 month foward returns are bullish

Baltic Dry Index

As the Baltic Dry Index continues to fall, some permabears are asking “how can the U.S. stock market be much higher today than where it was in 2016, if the Baltic Dry Index today is exactly where it was in 2016”?

*This question is non-sensical. It’s like asking “how can the stock market today be much higher than where it was in 1955, even though the Unemployment Rate today is the same as the Unemployment Rate in 1955”? The Baltic Dry Index swings in a wide range over the long term.

The Baltic Dry Index (a measure of global shipping) is now -56% below its 200 dma, signaling a slowdown in global trade.

Historically, this is not consistently bullish or bearish for stocks. This indicator has too many false signals.

Railroads

While broad stock market indices are still a ways off from all-time highs, the Dow Jones Railroad Index is already near all-time highs. Is this a bullish sign for the stock market?

Here’s what happens next to the S&P when the Dow Jones Railroad Index is within -2% of a 1 year high, while the S&P is more than -6% below its 1 year high

Not consistently bullish or bearish. Sometimes this happens in bear markets (see 2001-2002 and 2008). Sometimes this happens in bull markets.

Low volatility

The S&P Low Volatility ETF (SPLV) is overbought. Is this a short term bearish sign for the S&P 500 or SPLV?

Here’s what happens next to SPLV when its 14 day RSI exceeds 76

There is a slight tendency for SPLV to fall in the short term.

Here’s what happens next to the S&P

Do not take this as a long term bullish sign. The historical data for SPLV dates from 2011-present. Since there is no bear market data for SPLV, it’s only natural that all the 6-12 month forward returns are bullish.

Breadth

There are 2 ways to use breadth indicators:

  1. Breadth extremes
  2. Breadth divergences

I find breadth extremes to be more useful than breadth divergences. The problem with “divergences” isn’t that they don’t work. It’s that they work 50% of the time, i.e. not much better than a coin toss.

  1. Sometimes a divergence successfully predicts a reversal in the market
  2. Sometimes a divergence fails to predict a reversal in the market

Right now, our cumulative NYAD (a breadth indicator) is within -0.5% of a 2 year high, while the S&P is more than -6% below a 2 year high. In other words, breadth is going to make new all-time highs before the stock market does.

Historically, this is not consistently bullish or bearish for stocks

NFIB Small Business Optimism

NFIB Small Business Optimism has fallen 5 months in a row.

Here’s what happens next to the S&P 500 when NFIB Small Business Optimism falls 5 months in a row

Surprisingly, the stock market’s long term forward returns are bullish instead of bearish. Why?

  1. Major bear markets (e.g. 2000-2002, 2007-2009) usually start as choppy declines. This is because most investors are in disbelief. Their constant “buying the dip” slows down the decline.
  2. -15 to -20% corrections are usually much more fierce. I.e. a nonstop selloff

The stock market’s nonstop selloff in Q4 2018 combined with the government shutdown created a 5 month decline in NFIB Small Business Optimism. With the government shutdown temporarily over and the stock market back up, we will probably see a slight improvement in NFIB Small Business Optimism over the next few months.

Click here for yesterday’s market study

Conclusion

Here is our discretionary market outlook:

  1. The U.S. stock market’s long term risk:reward is no longer bullish. This doesn’t necessarily mean that the bull market is over. We’re merely talking about long term risk:reward. Long term risk:reward is more important than trying to predict exact tops and bottoms.
  2. The medium term direction (i.e. next 6 months) is neutral. Some market studies are medium term bullish while others are medium term bearish
  3. The stock market’s short term has a bearish lean due to the large probability of a pullback/retest. Focus on the medium-long term (and especially the long term) because the short term is extremely hard to predict.

Goldman Sachs’ Bull/Bear Indicator demonstrates that while the bull market’s top isn’t necessarily in, risk:reward does favor long term bears.

Our discretionary outlook is not a reflection of how we’re trading the markets right now. We trade based on our quantitative trading models.

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 2019 © 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