Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

Is Someone Secretly Smashing the Stock Market at Night?

Stock-Markets / Stock Markets 2019 May 16, 2019 - 10:43 AM GMT

By: Troy_Bombardia

Stock-Markets

The stock market has been rallying throughout the day and selling off at night throughout the recent stock market decline. Is this the sign of something more sinister that’s going on in the stock market. Meanwhile, interest rates are falling.


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.

Night vs Day

Over the past 8 days, the S&P has rallied more than 1% during the day and fallen more than -4% at night. From 1962 – present, this is the first time this has happened.

One could argue “in the midst of a trade war, foreign investors are selling U.S. futures (overnight) while domestic investors are buying (daytime).” A more conspiracy driven explanation would be “China is selling U.S. stocks to hit back at the U.S. during this trade war”.

We don’t guess or create random theories to explain why the stock market is doing what it is doing. Most of those guesses are no better than 50/50 bets. Instead, we just look at the data.

To increase the sample size, we can look at all the cases in which the S&P rallied more than 1% over the past 8 days while it fell more than -1% over the past 8 nights.

There’s a bullish lean over the next 1 week, although I’m not sure why this is.

Industrial Production

The media has been all over falling Industrial Production growth today.

Industrial Production is broken down into 3 groups:

  1. Manufacturing. This is the largest group, and is most important.
  2. Mining.
  3. Utilities.

Industrial Production Manufacturing growth has already turned negative. This has often occurred during recessions, although there are some false signals (see 2014, 2015).

Here’s what happens next to the S&P when Industrial Production Manufacturing’s year-over-year % growth falls below 0%

If we only look at the late-cycle cases (when unemployment is under 6%), it becomes a little more ominous:

Industrial Production is a weak point in macro right now. However, this is not one of the best leading indicators for the U.S. economy and stock market

Housing is improving?

After sustained weakness in 2018, housing seems to be improving. Here’s the NAHB Housing Market Index.

Housing is a key leading component of the U.S. economy. Since the U.S. economy and U.S. stock market move in the same direction in the long term, housing is also a key leading indicator for the stock market.

You can see that NAHB has cleared above its 12 month moving average for the first time in 1 year.

Here’s what happens next to the S&P when NAHB closes above its 12 month moving average for the first time in 1 year.

Not quite consistently bullish. It’s better to wait for a sustained housing breakout before turning optimistic on housing. You can see that there are plenty of 1 month false breakouts in 2001 and 2008.

Treasury yields

Just last year everyone was “worried about rising interest rates”. This year, everyone is “worried about falling interest rates”. Reason?

The market is pricing in a rate cut. When the Fed cuts interest rates, it means that the economy is sliding into a recession.

*There is some validity to this theory. However, I think that guessing when the Fed will cut/hike interest rates is no better than a 50/50 coin toss. The Fed has not cut rates yet.

You can see that the 2 year Treasury yield has fallen by a quarter over the past half year. Contrary to popular belief, this is not a consistently bearish factor for the stock market.

Russell’s continued indecision

The Russell continues to be indecisive around its 200 day moving average. It has crossed above and below its 200 dma 10 times in the past 3 months.

Historically, this happened at bull market tops (2000 and 2007).

But the sample size is small. What if we increased the sample size by expanding the parameters? Here’s what happens next to the Russell when it crosses above and below its 200 dma at least 10 times in the past 4 months.

Not as ominous for stocks.

Breadth galore

Traders love breadth indicators. And right now, long term breadth indicators like the NYSE, Dow, and NASDAQ Summation Indices are falling.

Here’s the NYSE McClellan Summation Index

This marks the end of a long streak above 620

Here’s what happens next to the NYSE Index when the NYSE McClellan Summation Index falls below 620 for the first time in 2 months.

Short term bearish, mostly bullish 6-12 months later.

Here’s what happens next to the S&P.

The Dow McClellan Summation Index is also falling.

This marks the end of a long streak above 930

Here’s what happens next to the Dow when the Dow McClellan Summation Index falls below 620 for the first time in 1 months.

And lastly, the NASDAQ McClellan Summation Index is also falling.

Once again, this is slightly short term bearish and medium term bullish for the NASDAQ.

Read Is the economy about to tip in a recession? What this means for stocks

We don’t use our discretionary outlook for trading. We use our quantitative trading models because they are end-to-end systems that tell you how to trade ALL THE TIME, even when our discretionary outlook is mixed. Members can see our model’s latest trades here updated in real-time.

Conclusion

Here is our discretionary market outlook:

  1. The U.S. stock market’s long term risk:reward is no longer bullish. In a most optimistic scenario, the bull market probably has 1 year left. Long term risk:reward is more important than trying to predict exact tops and bottoms.
  2. The medium term direction (e.g. next 6-12 months) leans bullish
  3. The short term is very noisy right now. There is no clear risk:reward edge in either direction (bullish or bearish). Some short term market studies are bullish, and others are bearish. And with trade war news flying left and right, we have even less conviction for the short term than usual.

Goldman Sachs’ Bull/Bear Indicator demonstrates that risk:reward does favor long term bears.

Click here for more market analysis

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