Bears are saying “the S&P today looks just like 2007” while bulls are saying “the S&P today looks just like 2016”. In reality, the S&P today is most like 1967 (not quite what you would expect).
Various technical factors suggest that the medium term is bullish.
The short term is mixed, and such a politically-driven market environment certainly does not add to one’s confidence about making short term predictions. Focus on the data and facts. Don’t trade the news.
Fundamentals (long term): no significant U.S. macro deterioration, but the long term risk:reward doesn’t favor bulls.
Technicals (medium term): mostly bullish
Technicals (short term): mixed

Let’s begin with technicals because most traders prefer technical analysis over fundamental analysis.
Technicals: Medium Term
*For

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Instead of trying to predict when the economy will deteriorate in the distant future (which countless experts have tried and failed), we simply look for deterioration among the leading indicators. Instead of predicting the next 10 steps, we seek to predict the next 1-2 steps for the economy.
Here’s a brief summary of the leading economic indicators we track
Positive factors
Labor market
Corporate profits
Financial conditions
Loans
High yield spreads
Inflation-adjusted new orders
Heavy Truck Sales
Earnings revisions
Inflation-adjusted retail sales
Negative factors
Housing
Yield curve
Average weekly hours
Conclusion
Overall, macro points to continued economic growth. A recession is unlikely to start within the next few months.
Right now, the most likely start date for a recession

The stock market has recovered most of its decline in May. However, sentiment remains pessimistic. Today’s headlines:
Sentiment is still pessimistic despite the stock market’s rally
Put/Call ratio spiked
Short term interest rates are still collapsing
Breadth made a quick recovery
SKEW remains depressed despite the stock market’s rally
VIX remains elevated despite the stock market’s rally
Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Sentiment
While AAII Bulls % (sentiment) did increase over the past week as the stock market rallied, it is still quite low.

Here’s what happens next to the S&P 500 when the S&P is within -3% of a one year high, while AAII Bulls is

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As the trade war impacts the U.S. economy, global breadth remains supportive for stocks. Today’s headlines:
Global breadth
Defensive stocks outperforming
Imports and exports hit by trade war
Mortgage Refinance Index spikes
Will the S&P catch down to oil?
Is the NASDAQ short term overbought?

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Global breadth
Over the past half year, the media and social media have been constantly ringing the alarm bells about a “global recession”. But despite fears of a global recession, the global Advance-Decline Line (breadth) has made a new high.

This is because while the U.S. has been weighed down by a trade war, countries that are

After a big 5 day rally, the stock market is stalling. Today’s headlines:
Canary in the coal mine: small caps underperforming large caps
NASDAQ’s breadth
Interest rate cuts
Crash pattern
Job openings
Tech’s surge

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Canary in the coal mine?
While small caps outperformed large caps in the initial part of this December 2018 – present rally, small caps have underperformed recently.

The S&P has outperformed the Russell by more than 2.5% since December 24. Is this a “canary in the coal mine”?
Here’s what happens next to the S&P when both the Russell and S&P rally more than 10% in the past 116 days, but the S&P outperformed

Relative Strength Index, more commonly known as RSI is a very popular momentum indicator. It is often used as a contrarian indicator by traders.
RSI becomes “oversold” when the market falls a lot
RSI becomes “overbought” when the market rises a lot
A lot of traders use RSI to predict the bottom and top of a market.
You may have wondered “does RSI actually work when trading”? A lot of trading gurus claim that this “works”, but they only show you the cases when it works and they don’t show you the cases when it doesn’t work.
In this post we’re going to look at
What is RSI
How traders commonly use RSI
Problems with RSI (from a logical perspective)
How well does RSI actually work (looking at the COMPLETE data & facts)
Instead of reading this post, you can just watch the video

The S&P fell 4 weeks in a row and has now rallied 5 days in a row. This has been a rather sharp reversal, which isn’t surprising given the current news-driven environment. Today’s headlines:
Smart Money Flow Index continues to trend upwards.
Bearish shooting star
S&P’s momentum
Corporate bond yields
NYSE advance-decline line
New highs expansion
The S&P today is just like…

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Smart Money Flow Index
The Smart Money Flow Index is calculated by adding the Dow’s change in the last hour of each day and subtracting the Dow’s change in the first 30 minutes of each day.
The Smart Money Flow Index is based on the idea that “smart

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The common assumption is that bonds are screaming RECESSION right now, while the stock market refuses to hear it. This isn’t entirely true. While the stock market’s long term risk:reward is certainly not bullish, the economic data suggests that a U.S. recession is not imminent.
Various technical factors also suggest that the medium term is still bullish.
And lastly, the biggest short term risk is still trade war news. If this week demonstrated anything, it is that you cannot trade by guessing the news. Focus on the data & facts.
Long term risk:reward doesn’t favor bulls
Technicals (medium term): mostly bullish
U.S. macro: no significant deterioration, although there are pockets of weakness.

Long Term Risk:reward
The stock market’s long term risk:reward favors bears.
Valuations

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After falling 4 weeks in a row, the stock market reversed upwards very strongly this week. Today’s headlines:
S&P strong reversal
Stocks:commodities ratio at an extreme
S&P continues to outperform the Russell
Citigroup Economic Surprise Index hasn’t recovered
VIX and the S&P both went up today
Copper and yields leading the S&P down?
Copper down 8 weeks in a row
Gold up 8 days in a row

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

S&P strong reversal
The S&P fell 4 weeks in a row, and then rallied more than 4% this week. Similar historical patterns could lead to a consolidation over the next few weeks, but this was mostly bullish 3-6 months later.

Instead of trying to predict when the economy will deteriorate in the distant future (which countless experts have tried and failed), we simply look for deterioration among the leading indicators. Instead of predicting the next 10 steps, we seek to predict the next 1-2 steps for the economy.
Here’s a brief summary of the leading economic indicators we track
Positive factors
Labor market
Corporate profits
Financial conditions
Loans
High yield spreads
Inflation-adjusted new orders
Heavy Truck Sales
Earnings revisions
Negative factors
Housing
Yield curve
Inflation-adjusted retail sales
Average weekly hours
Conclusion
Overall, macro points to continued economic growth. A recession is unlikely to start within the next few months.
Right now, the most likely start date for a recession

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Today’s headlines:
The S&P is indecisive around its long term trendline
Household networth surge
Sentiment is low
Utilities and real estate are outperforming
Gold:oil spike
Gold rally

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

The S&P is indecisive around its long term trendline
The S&P 500 has been very indecisive around its long term trend, as commonly defined by the 200 day moving average.
The S&P has crossed above and below its 200 dma 14 times in the past 9 months.

It’s easy to see this as a long term bearish sign (potentially topping pattern). The last 2 times this happened were bearish.

But we are no fans of recency bias. Here’s every case in which

The S&P went up today while oil tanked. Depending on which index you look at, the U.S. stock market “could” be making a triple top. (Also, U.S.-Mexico negotiators failed to reach a deal). Today’s headlines:
Volume is interesting
Defensives are outperforming
Treasury yields and stocks are both up
30 year – 2 year yield curve steepening
What oil & gold are saying about stocks
Will the S&P “catch down” to oil’s crash?
Some very bearish patterns.

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Interesting volume
While the S&P was falling over the past 4 weeks (excluding this week), SPY’s volume was also falling (SPY = S&P 500 ETF).
This is unusual, because stock market

The stock market rallied above its 200 day moving average today along with Fed-related news. Today’s headlines:
The New York Fed’s Recession Probability Model continues to increase
Today’s spike saw relatively low volume
Stocks spiked, but VIX didn’t fall significantly today
30 year – 2 year Treasury yield is steepening
PMI and the S&P are both falling
Zahorchak Method isn’t falling

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

New York Fed Recession Probability Model
The New York Fed has a Recession Probability Model that uses the 10 year – 3 month Treasury yield.

Here’s the model, which is currently above 29%

Here’s what happens next to the S&P when the

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Trade war news continues to dominate headlines, and the stock market continues to fall with Treasury bond yields. Tech (particularly FANG) massively underperformed other indices today due to anti-trust news. Today’s headlines:
Goldman Sachs Bull/Bear Market Indicator is rolling over into a bear market?
NASDAQ’s very quick drop into correction territory
The collapse in Treasury yields continues
Emerging markets are outperforming the U.S.
Baltic Dry Index is going up
Gold and silver spike

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Goldman Sachs Bull/Bear Indicator
Goldman Sachs has a widely quoted Bull/Bear Indicator that takes the average percentile of 5

Moving averages are very popular among traders.
Trend followers use them to determine trends
Contrarian traders use them to determine support and resistance
Today we’re going to look at moving average crossovers – golden cross and death cross, which is a common trend following technique used by traders.
Now you’re probably wondering “do moving average crossovers actually work”?
Do a quick Google search, and you’ll see that there aren’t a lot of evidence based answers.
Some trading experts claim that moving average crossovers work
Other trading experts claim that moving average crossovers don’t work
In today’s post, we’re going to cover:
What are moving average crossovers?
How well do moving average crossovers actually work? (Pure facts and numbers, no “guessing”)
The secret

The stock market’s chart “looks terrible”, because it looks like the April high was a false breakout. In reality, it’s perfectly normal for the stock market to make a pullack/correction after making a new high.
The data suggests that the medium term is still bullish.
Up until this week, our market studies for the next 1-3 months were mixed. Now, they are starting to turn bullish. This doesn’t mean that the stock market cannot selloff for another week or two. The trade war is the biggest risk, but we are not in the business of guessing the news.
Fundamentals (long term): no significant U.S. macro deterioration, but the long term risk:reward doesn’t favor bulls.
Technicals (medium term): mostly bullish
Technicals (short term): bullish, with trade war news being the biggest short

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The S&P is now down -6.5% from its all-time high, after making a marginal new high vs. its September 2018. On the charts, this “looks like” a bull trap. Is it really? Today’s headlines:
Examining the “bull trap”
Collapsing Treasury yields, and what this means for stocks
SKEW’s decline
Dow has fallen 6 weeks in a row
Copper and stocks both down 4 weeks in a row
First monthly decline after a 4 month rally
Emerging markets outperforming the U.S.

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Bull trap
After briefly making a new all-time high, the S&P is now down -6.5%. This “looks” terrible on a chart, because it looks like a false breakout.

But is this actually

Instead of trying to predict when the economy will deteriorate in the distant future (which countless experts have tried and failed), we simply look for deterioration among the leading indicators. Instead of predicting the next 10 steps, we seek to predict the next 1-2 steps for the economy.
Here’s a brief summary of the leading economic indicators we track
Positive factors
Labor market
Corporate profits
Financial conditions
Loans
High yield spreads
Inflation-adjusted new orders
Heavy Truck Sales
Earnings revisions
Negative factors
Housing
Yield curve
Inflation-adjusted retail sales
Average weekly hours
Special note: trade-related indicators
There’s been a lot of hype recently in the media and social media about the trade war and “global slowdown”. First, a note from Bill

The stock market is falling after hours on new trade war news. In an environment like this, predicting the short term is extremely difficult. Trump talks about the U.S.-Mexico-Canada Agreement, stocks go up. Trump talks about slapping new tariffs on Mexcio, stocks go down. Today’s headlines:
Investors are turning bearish on stocks very quickly.
Diverging yield curves.
Consumer Confidence is extremely high – just like 1999.
In a falling interest rate environment, finance isn’t underperforming
Copper is getting hammered.
Dow’s breadth is weakening

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Investors are turning bearish
AAII sentiment has turned bearish very

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The stock market fell again today, and is sitting right ontop of its 200 day moving average. Meanwhile, the S&P has had a very strong relationship with the 10 year yield this year. Today’s headlines:
S&P, Dow, and NASDAQ breaking their 200 dma’s
Relationship between stocks and Treasury yields
Put/Call ratio spike
Weakening S&P breadth
Weakening NYSE breadth
May has been weak (seasonality)

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

The Dow, S&P, NASDAQ and their 200 day moving averages
The Dow, S&P, and NASDAQ have either fallen below their 200 day moving averages or have almost fallen below their 200 dma’s. Hence why headlines like this are popping out right

The S&P fell today, and the 10 year – 3 month yield curve pushed further into negative territory. Meanwhile, the S&P’s 200 day moving average is once again sloping downwards. Today’s headlines:
S&P’s 200 day moving average is trending downwards
Yield curve even more inverted
Margin debt is lagging the S&P
Small caps vs. large caps ratio is falling
NASDAQ’s breadth is weakening
VIX is making lower highs while the S&P is making lower lows

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

S&P’s 200 day moving average is trending downwards
The S&P’s 200 day moving average is going down again.

From a trend following perspective, here’s what happens when you
Buy and hold

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