Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
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
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter


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


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 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.


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.


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.


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

I’m Troy Bombardia, the author behind 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 - 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