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

Coronavirus-stocks-bear-market-2020-analysis

The Stock Market Fell and Volatility Spiked. What’s Next

Stock-Markets / Stock Markets 2019 Aug 02, 2019 - 08:43 AM GMT

By: Troy_Bombardia

Stock-Markets

The S&P fell Thursday on trade war-related news and volatility spiked. Today’s headlines:

  1. More economic weakness in manufacturing.
  2. Long streak of bad economic surprises
  3. Stock market’s volatility spiked
  4. AAII sentiment
  5. Short term bounce ahead for stocks?

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.

ISM

As we examined yesterday, manufacturing is a weak point in the U.S. economy (along with housing). The latest ISM manufacturing PMI data confirms this. ISM has fallen to 51.2

It’s easy to automatically assume that this is bearish for the stock market. Here’s what happened next to the S&P when ISM manufacturing PMI fell to 51.2 in the past.

Far from being bearish, the S&P went up 1 year later 88% of the time. Why? Because like many manufacturing-related indicators, the ISM manufacturing PMI has too many false bearish signals.

So what if we consider this signal in the context of where we are in this economic expansion cycle? Here’s what happened next to the S&P when ISM PMI fell to 51.2, while unemployment was under 5% (i.e. late-cycle in the economic expansion).

The 6-9 month forward returns are more bearish than random.

Economic surprises

Amid a never-ending supply of weak manufacturing-related economic data, the Citigroup Economic Surprise Index has been negative for 117 days. This long streak demonstrates that economic data has mostly surprised analysts expectations on the downside.

There are only 3 other streaks that matched this length:

  1. May 2016
  2. July 2015
  3. March 2009

Volatility

Over the past week our stats have suggested that the stock market would make a short term pullback/correction and volatility would spike. Lucky bet or not, VIX has spiked.

*There’s a lot of luck involved in short term predictions, no matter how much confidence you have in your forecasting powers. Too many unpredictable events impact the markets in the short run. That’s why I generally don’t make short term predictions.

For the first time since May, VIX has closed above its upper Bollinger Band for 2 days in a row. VIX is mean-reverting.

While this isn’t necessarily bullish for the S&P, it is bearish for VIX.

This doesn’t mean that VIX can’t spike for another few days. It just means that the VIX spike we expected has arrived, so from a risk:reward perspective it doesn’t make sense to start going long VIX right now.

Sentiment

AAII isn’t the best sentiment indicator, but it is a popular one. Bullish sentiment is rising and bearish sentiment is falling. AAII Bulls has exceeded 38% and AAII Bears has fallen below 25% for the first time in 11 weeks.

Rising Bullish % was mostly bullish for stocks 1 year later.

Falling Bearish % was slightly short term bearish for stocks, but also long term bullish.

Short term bounce

The S&P has fallen 4 days in a row and more than -2% straight from an all-time high.

In the past, this was bullish for the S&P 1 week later.

Remember: be wary of short term predictions.

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 are mixed/bearish.
  4. We focus on the medium-long term.

Goldman Sachs’ Bull/Bear Indicator demonstrates that risk:reward favors 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.

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