Stocks Outlook - Friday, August 24

Thoughts

1. The stock market’s seasonality is bearish in September. A short term bearish factor.
2. Fears of a Trump impeachment are short term worries for the stock market. Medium-long term traders can ignore it.
3. Truck Tonnage is trending higher. A medium-long term bullish sign for the stock market.
4. Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
5. Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

1 am: the stock market’s seasonality is bearish in September. A short term bearish factor

September is on average the S&P 500’s weakest month of the year.

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Here is the S&P 500’s performance in September over the past 20 years.

This seasonality is a short term bearish factor for the S&P in September.

1 am: Fears of a Trump impeachment are short term worries for the stock market. Medium-long term traders can ignore it.

Some people are afraid that a Trump impeachment might lead to a stock market crash. I don’t think so.

1. Impeachment is possible depending on the outcome of the midterm election. If Democrats win the House (which it looks like they are), then impeachment is a very real possibility.
2. HOWEVER, it’s highly unlikely that Trump will be removed from office. That requires a 2/3 majority in the House.
3. Even if Trump is removed from office, Mike Pence will merely be a continuation of Trump’s policies. Nothing much will change.

If Trump is impeached, then perhaps the stock market will experience some short term selling. But this isn’t a medium-long term concern. For example, the stock market mostly ignored Clinton’s impeachment.

Nixon’s resignation was different. The stock market didn’t crash in 1974 because of Watergate. The stock market was in a bear market in 1974 because the economy was already in a massive oil-crisis induced recession.

1 am: Truck Tonnage is trending higher. A medium-long term bullish sign for the stock market.

Truck Tonnage measures the volume of the movement of freight in the U.S. This indicator tends to flatten or fall before an equities bear market or economic recession begins.

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The latest reading for Truck Tonnage made a new high. This suggests that the bull market in U.S. stocks will continue.

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This is a long term chart for Truck Tonnage.

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1 am: Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

Yesterday’s reading for Initial Claims went down a little (from 212k to 210k). However, the key point is that Initial Claims are still trending lower right now. Initial Claims recently made a new low a few weeks ago.

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*Initial Claims lead the economy and stock market. Historically, its trends higher before a bear market in stocks started (see study).

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We use Initial Claims data in these 2 trading models (here and here). These 2 trading models state that you should be long stocks right now because Initial Claims data is still trending downwards.

This suggests that the bull market in stocks is not over because Initial Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Initial Claims are very low right now (historically speaking). We are trying to catch the bull market’s top because the bull market most likely only has 1-2 years left.

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1 am: Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

Yesterday’s reading for Continued Claims went down a little from the previous week’s reading (from 1.729 million to 1.727 million). But the key point is that Continued Claims are still trending lower right now.

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Like Initial Claims, Continued Claims lead the stock market and economy.

This suggests that the bull market in stocks is not over because Continued Claims have not trended higher yet. HOWEVER, we are watching out for any SUSTAINED increase in this data series because Continued Claims are very low right now (historically speaking). We are trying to catch the bull market’s top because the bull market most likely only has 1-2 years left.

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This chart demonstrates the inverse correlation between the S&P 500 and Continued Claims. A downwards trending Continued Claims = medium-long term bullish for the stock market.

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Outlook

Here’s what I think will happen based on my discretionary outlook.

1. 2018 will trend higher but will also be a choppy year.
2. The S&P 500 has approximately 1 year left in this bull market.