Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Stock Market Bearish Signs from the Fed, Economy, and Volume

Stock-Markets / Stock Markets 2019 Aug 01, 2019 - 04:42 PM GMT

By: Troy_Bombardia

Stock-Markets

Stocks fell Wednesday as the Fed cut interest rates. Today’s headlines:

  1. Rate cut and stocks
  2. The economic expansion cycle
  3. Manufacturing weakness
  4. Stock market’s volume
  5. U.S. Dollar breakout

Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Rate cut

The Fed cut rates today for the first time in this economic expansion cycle. The Fed has cut rates many times over the past few decades, so if we just look at “what happens next to the S&P when the Fed cuts rates”, the answer is “anything can happen”.

That’s why when most traders look at how rate cuts impact the stock market, they usually apply a filter such as:

  1. Fed cuts rates while the S&P is within -2% of an all-time high
  2. Fed cuts rates for the first time in more than 2 years (because the first rate cut is often very different than the 5th rate cut in a rate cut cycle)
  3. Fed cuts rates while Unemployment is under 5% (i.e. late-cycle in the economic expansion)

Each of these filters makes sense, and I personally prefer the 3rd filter.

Here’s what happens next to the S&P when the Fed cuts rates while the S&P is within -2% of an all-time high, as we examined yesterday.

Here’s what happens next to the S&P when the Fed cuts rates for the first time in more than 2 years:

And finally, here’s what happens next to the S&P when the Fed cuts rates while unemployment is under 5%.

Overall, late-cycle rate cuts aren’t great for the stock market from a long term perspective. As the economic expansion ages, the long term downside risk for the economy is much higher than the upside.

Goldman Sachs Bull/Bear Indicator

Cycles are important. A signal (e.g. rate cut) that appears early in the economic expansion has a very different meaning from the same signal that appears late in the economic expansion.

A popular way of determining where we are in the economic expansion cycle is to use the Goldman Sachs Bull/Bear Indicator. This indicator uses 5 indicators to determine where we are in the bull market and economic expansion.

  1. ISM
  2. Yield curve
  3. Core inflation
  4. Unemployment
  5. Shiller P/E

These long term indicators tell you little about what the stock market will do over the next week, month, or even year. However, it does give you an indication of what the stock market will do over the next 3-5 years.

The Goldman Bull/Bear indicator is very high right now (above 0.8). From 1953 – present, there have been 162 months with Bull/Bear readings above 0.7

When this happened in the past, the S&P’s average gain over the next 2-5 years was negative.

As I said, long term risk:reward does not favor bulls, even if the bull market does last another 1-2 years. Eventually there will be a big bear market

Manufacturing

Manufacturing data has been weak in recent months, and this is probably related to the ongoing trade war. Today’s Chicago PMI reading was extremely low. Except from a false signal in 2015, such low Chicago PMI readings always occurred during a recession.

Here’s what happened next to the S&P when the Chicago PMI fell below 45.

The stock market’s 6 month forward returns are more bearish than random. But as I’ve said over the past few months, manufacturing is just one sector of the economy. Right now, manufacturing and trade-related sectors are weak while other sectors of the economy are fine. Overall, the U.S. economy is not on the verge of a recession. You must look at the economic data holistically.

Volume

The stock market saw little volatility and little downside over the past 2 months. With the S&P falling more than -1% today for the first time in 7 weeks, 74% of volume on the NYSE was declining. DOWN volume is starting to rise after a 2 month slump.

In the past, this was mostly bearish for the S&P over the next 3 months.

USD

And lastly, the U.S. Dollar Index has broken out to the highest level since 2017.

In the past, such breakouts were bearish for the U.S. Dollar…

… and bullish for gold 3 months later.

Moreover, this was not consistently bearish for stocks.

*Sample size is a little small.

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. Long term: risk:reward is not bullish. In a most optimistic scenario, the bull market probably has 1 year left.
  2. Medium term (next 6-9 months): most market studies lean bullish.
  3. Short term (next 1-3 months) market studies lean bearish.
  4. We focus on the medium-long term.

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.

Troy Bombardia Archive

© 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