Everyone wants to know when the market will come crashing down again, and a new article on Seeking Alpha predicts stocks will rally to new highs in early 2019, only to come tumbling down into a bear market shortly thereafter, putting an end to the current bull market’s record run.
Per Seeking Alpha:
The S&P 500 has made a 61.8% retracement and is now stalling. This is completely normal. Most 10%+ corrections have a 61.8% retracement and then a pullback or retest of the lows before heading higher.
The economy’s fundamentals determine the stock market’s medium-long term outlook. Technicals determine the stock market’s short-medium term outlook. Here’s why:
- The stock market’s long term is bullish. The bull market will probably peak in Q2 2019.
- The stock market’s medium term is bullish.
- The stock market’s short term leans bearish.
We focus on the medium and long term. Let’s go from the long term, to the medium term, to the short term.
Long Term
Our long term outlook remains bullish. This bull market will probably last until Q2 2019, after which a bear market will ensue.
The economy and the stock market move in the same direction in the long term. Hence, leading economic indicators are also long term leading stock market indicators.
Most leading indicators are still improving. However, the economy is close to “as good as it gets”, which suggests that it’ll start to deteriorate in 2019.
Medium Term
Our medium term outlook (next 6-9 months) remains bullish.
The S&P 500 went up more than 2% for 2 weeks in a row.
When this happens (historically), the stock market’s 6-9 month forward returns are better than average.
Meanwhile, oil has crashed. Oil’s 14 day RSI is now below 21.
When this happens (historically), oil tends go lower over the next 9 months, but the stock market’s forward returns are decent, especially 2 months later. Oil’s decline is unlikely to turn into “contagion” for the U.S. stock market.
On Wednesday the U.S. stock market made a big “gap up”.
Such big “gap ups” are usually a medium term bullish sign because it indicates ample “buy the dip” mentality in the market.
Short-Medium Term
The stock market’s 1-2 month forward returns are mixed right now, because there is a >50% probability that the stock market will pullback before heading higher. Most of the “bearish cases” occur within the next 1 month.
NYMOT has rebounded rapidly. (NYMOT is the traditional NYSE McClellan Oscillator – a breadth indicator). As of Wednesday, NYMOT went from under -250 to above +200 in less than 1 month.
Conclusion
Here is our discretionary market outlook:
- The stock market’s long term is bullish. The bull market will probably peak in mid-2019, after which a bear market will ensue.
- The stock market’s medium term is bullish (i.e. trend for the next 6-9 months).
- The stock market’s short term leans bearish over the next few weeks.
Focus on the medium term and the long term.
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