In A Most Optimistic Scenario, The Bull Market Has 1 Year Left

The S&P is still hovering around its 50% fibonacci retracement, which is a very important resistance. Meanwhile, the macro data is mixed. Some long term leading indicators are starting to turn long term bearish, while others have yet to do so.

 

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.

Macro

With the government shutdown still continuing, Initial Claims data is one of the few leading indicators we have available right now.

Initial Claims just made a new low for this economic expansion and is now under 200,000. In the past, Initial Claims trended higher for months before a bear market and recession began.

 

The one big concern is that Initial Claims is very low right now. In fact, the only other time Initial Claims has been this low was in the late-1960s.

 

Here’s what happens next to the S&P when Initial Claims is under 200k

 

As you can see, all the historical cases are the same. The first time this happened in a previous economic expansion was November 1967. In that historical case, the S&P 500 had 1 more year until the bull market ended.

 

Hence, “1 more year left of the bull market” is the most optimistic case.

This is not yet a long term bearish sign for the stock market. But with Initial Claims so low, watch out for an upwards trend in the data. When the upwards trend begins, that’s when you get a long term bearish sign.

AAII

AAII is one of the more popular sentiment indicators out there. AAII Bears % (pessimism) has been above average for 18 of the past 20 weeks.

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Our discretionary outlook is not a reflection of how we’re trading the markets right now. We trade based on our quantitative trading ...

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