Stocks Outlook - Friday, Sept. 7

Thoughts

1. Corporate Insiders are dumping stocks. Here’s why you shouldn’t worry about this.
2. Citigroup’s Panic/Euphoria Model continues to register “euphoria”. Watch out in 2019.
3. Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
4. Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
5. Commercial hedgers (smart money) are extremely bullish on gold and silver.

1 am: Corporate Insiders are dumping stocks. Here’s why you shouldn’t worry about this.

A recent Bloomberg article caught my eye:

In other words, corporate insiders (who are supposedly “smart money”) are dumping their stocks even as their companies conduct massive share buybacks.

Is this bearish for the stock market? No. I would ignore this. Corporate Insiders are not “smart money”. They’re good at running their companies, not trading their stocks.

In fact, corporate insiders have been “dumping” their stocks pretty much throughout the entire course of this bull market.

1. July 2018 from CNN: “CEOs are dumping stock in their companies. Here’s what that means”
2. February 2017 from CNBC: “Companies are dumping stocks at levels ‘rarely seen’, report indicates”.
3. March 2015 from Market Watch: “Tech insiders dumping stocks as their companies buy them back”
4. March 2014 from Market Watch: “In-the-know insiders are dumping stocks”
5. August 2009 from Reuters: “Bears prowl Wall St as insiders dump stock”

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Corporate insiders are neither better nor worse than your average mom-and-pop as market timers.

1 am: Citigroup’s Panic/Euphoria Model continues to register “euphoria”. Watch out in 2019.

Citigroup publishes a Panic/Euphoria Model (sentiment indicator). It continues to register “euphoria” for the second month in a row.

Citigroup’s Panic/Euphoria model tends to turn bearish too early: specifically, 1-1.5 years too early. This supports the case for a major stock market top in 2019.

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 made a new low for this economic expansion (fell from 213k to 203k).The key point is that Initial Claims are still trending lower right now.

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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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Flipping the Initial Claims axis makes the inverse relationship between Initial Claims & the S&P very clear.

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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 1.710 million to 1.707 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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Flipping the Continued Claims axis makes the inverse relationship between Continued Claims & the S&P very clear.

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1 am: Commercial hedgers (smart money) are extremely bullish on gold and silver.

The latest COT report reading demonstrates that commercial hedgers (smart money) remain extremely bullish on gold and silver.

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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 (bull market top sometime in 2019).