Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

After 8 Terrific Weeks for Stocks, What’s Next?

Stock-Markets / Stock Markets 2019 Feb 16, 2019 - 04:37 PM GMT

By: Troy_Bombardia

Stock-Markets

It’s been a terrific 8 weeks for the stock market. If anything, this proves that in the stock market, an objective investor/trader needs to have a long term bullish bias.


On the surface, this seems contradictory. How can you be “objective” and have a bullish “bias” at the same time?

Because the stock market goes up more often than it goes down. The stock market follows the economy in the long run. More often than not, the economy is expanding rather than contracting. Humanity is improving more often than it is deteriorating.

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.

Terrific 8 weeks

The S&P has gone 8 consecutive weeks in which its weekly CLOSE was higher than its weekly OPEN

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

As you can see, this is a slightly long term bullish factor for the S&P (1 year later). More often than not, such strong momentum carries forward into the year ahead.

This is the first time since 1987 in which the Russell 2000, NASDAQ, and S&P have all gone 8 weeks in a row in which their weekly CLOSES > their weekly OPENS

And lastly, there is only 1 other case (except right now) in which the S&P rallied 8 weeks in a row from a 1 year low:

April 1957

This is a case that I had outlined weeks ago. It is one of the few historical cases in which the S&P came close to making a new all-time high before making a pullback/retest.

VIX

While the stock market has soared, VIX has collapsed. It is now down 8 weeks in a row.

VIX has fallen more than -50% over the past 8 weeks, and this has only happened 1 other time since 1990:

August 15, 2016

But more importantly, VIX closed below 15 today for the first time in more than 4 months.

This is important, because VIX is typically more elevated in bear market rallies.

Here’s what happens next to the S&P when VIX closes under 15, for the first time in 4 months

*Data from 1990 – present

This is a short term bearish factor for the stock market (especially 2 months later), but is bullish for stocks over the next 1 year.

Here’s what happens next to VIX when VIX closes under 15, for the first time in 4 months

Perhaps it’s time to go long VIX?

BPSPX

The S&P 500 Bullish Percent Index is another breadth indicator. (I’m not a huge fan of breadth indicators, but traders seem to love this stuff).

The S&P Bullish Percent Index’s 14 day RSI is very overbought right now. Is this bad news for the stock market?

Here’s what happens next to the S&P when the Bullish Percent Index’s 14 day RSI exceeds 86

Not a consistently bearish sign for the stock market on any time frame, although there is a slight bullish lean 9-12 months later.

Breadth usually isn’t this strong in a bear market.

Great start to the year

It’s been a terrific start to the year, with the S&P gaining more than 10%.

This has some investors and financial commentators thinking that most of 2019’s gains are already over.

This isn’t always true.

Here’s what happens next to the S&P when it goes up more than 10% in January and February.

*February obviously isn’t over, so take this with a grain of salt.

Let’s loosen the study’s parameters a little.

Here’s what happens next to the S&P when it goes up more than 8% in January and February.

As you can see, there’s no reason why 2019’s gains MUST be mostly over. Strength can beget more strength. (That’s the idea behind “momentum”, a well researched factor in investing since the 1990s).

Gold

I find gold’s recent rally to be quite remarkable:

  1. Gold is rallying while interest rates are falling.
  2. Gold is rallying while the U.S. Dollar is doing well.

Gold and yields both respond to inflation. That’s why more often than not, major rallies in gold are accompanied by rising interest rates. (Both gold and interest rates soared in the 1970s).

On the other hand, gold and the U.S. Dollar Index usually have an inverse correlation.

Here’s a chart demonstrating that gold has gone up while rates have gone down.

Here’s a chart demonstrating that gold has done well in the face of a strong USD.

Here’s what happens next to gold when gold goes up more than 10% over the past 3 months, while the % change in the 10 year yield is less than -15% (first case in 1 month)

* Data from 1970 – present

This is quite bullish for gold 3 months later

Here’s what the 10 year Treasury yield does next

Not consistently bullish or bearish.

Here’s what happens next to gold when gold goes up more than 10% over the past 3 months, while the USD Index goes up more than 1.5%

*Data from 1973-present

Here’s what happens next to the USD

Not consistently bullish or bearish for gold or the USD Index

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 neutral. Some market studies are medium term bullish while others are medium term bearish
  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 clear, 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.


© 2005-2022 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