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
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Stock Market’s Momentum is Extremely Strong. What’s Next for Stocks

Stock-Markets / Stock Markets 2019 Feb 21, 2019 - 05:34 PM GMT

By: Troy_Bombardia

Stock-Markets

The S&P 500’s nonstop rally continues, and is nearing several resistances at the 2800-2813 level. Meanwhile, the stock market is overbought for the first time in a long time.


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.

S&P overbought

The S&P 500’s 14 day RSI has become overbought (exceed 70) for the first time in more than 5 months. That’s a very long time, which demonstrates the lack of a persistent rally until now.

Here’s what happens next to the S&P when becomes overbought for the first time in at least 5 months.

As you can see, the stock market’s short term outlook is mixed, but it’s long term outlook (6-12 months later) is more bullish than random.

The trend is your friend

This rally has been extremely persistent, with the S&P above its 10 day moving average for 32 consecutive days.

Just because the market has rallied “too much” already, does it mean that a pullback is imminent?

Not necessarily. That’s why well researched factors such as “momentum” exist in the market.

Here are similar historical cases, and what the S&P did next

As you can see, the stock market has a bullish bias 1 month later

Perfect Recession

CNBC published a good article about the perfect recession indicator.

Historically, a 0.5% increase in Unemployment from the lowest reading in each economic expansion guaranteed that a recession had begun. Here’s what the S&P did next

As you can see, this is quite a bearish factor for the S&P.

However, there is one big problem with this indicator.

Only with 20/20 hindsight can you ascertain the low in unemployment of each economic expansion.

E.g. let’s assume that Unemployment rises from 3.8% to 4.3%. You think that this bearish indicator is triggered. Then Unemployment falls to 3.7%, making a new low that invalidates the previous signal.

Regardless, this indicator has not been triggered so far. Unemployment is up 0.3%

This is not yet a long term bearish sign, but is something to watch out for through the rest of 2019 in case it persists.

Housing worries

While the housing market improved a little recently, the main trend is still downwards.

Here’s the small improvement in the NAHB Housing Market Index.

Here’s the main trend in the NAHB Housing Market Index.

Here’s what happens next to the S&P when the NAHB Housing Market Index is under its 12 month moving average for 9 consecutive months.

As you can see, this happens near a lot of problems in the stock market and U.S. economy.

  1. November 1987: this occurred after the October 1987 crash.
  2. July 1990: this occurred at the start of the 1990 recession and -20% stock market decline
  3. December 1994: this was a false signal. The economy deteriorated a little in early 1995, yet the stock market soared
  4. May 2000: this occurred at the top of the dot-com bubble. It was followed by a massive -50% bear market
  5. May 2006: this occurred 1.5 years before the 2007-2009 bear market
  6. December 2007: this occurred at the start of the 2007-2009 bear market
  7. February 2011: a -20% stock market decline began 5 months later

This generally isn’t a good sign for the stock market. It’s not immediately bearish, but it is something bulls should watch out for IF this persists.

Meanwhile, this is more short term bearish than bullish for the USD Index.

NASDAQ breakout

The NASDAQ broke out above its 200 dma recently, after being deeply oversold in December 2018.

Here’s what happens next to the NASDAQ when it closes above its 200 dma, after being more than -15% below its 200 dma within the past 2 months.

Not consistently bullish or bearish for the NASDAQ

Sustained breadth

Strong breadth remains sustained, with the NYSE McClellan Oscillator above zero for 34 consecutive days. This is an extremely long streak of strong breadth.

Here’s what happens next to the S&P when the NYSE McClellan Oscillator remains above zero for 34 consecutive days.

Not consistently bullish or bearish for stocks.

Industrials leading the way

Industrial stocks are leading the stock market’s rally. Over the past 39 days, XLI (industrial sector ETF) has rallied more than 25% while the S&P has rallied less than 19%

From 1998 – present, this has only happened 1 other time in April-May 2009.

n =1, so take this with a grain of salt

Gold

Gold has been on a tear, rallying along with the S&P. Gold is up more than 5% over the past 39 days while the S&P is up more than 16%.

Historically, the only other time gold and stocks surged together was in October 1982

n =1, so take this with a grain of salt

Small cap vs large cap

Large cap stocks are much closer to making new all time highs than small cap stocks. The Dow is within -4% from a 1 year high, while the Russell 2000 is still more than -9% from a 1 year high

What does this mean for the stock market?

*Data from 1987 – present, first case in 1 month

Not much. Aside from a 1 week forward bearish bias, this is neither consistently bullish or bearish for stocks.

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. In a most optimstic 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 (i.e. next 6 months) is mostly neutral. There are a few more medium term bullish studies than medium term bearish studies
  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, such as the Medium-Long Term Model.

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 2018 © 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