Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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