The S&P 500 is right under all-time highs. An upside breakout in the next few weeks/months is very likely.

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Based on where the Medium-Long Term Model is right now and the rate at which data is progressing, this bull market probably has 1 year left. Over the past week we have seen a few more signs that the stock market will probably make an important top somewhere in mid-2019.

As always, the U.S. economy’s fundamentals determine the U.S. stock market’s medium-long term outlook. Technicals determine the stock market’s short-medium term outlook. Here’s why:

1. The stock market’s long-term is bullish.
2. The stock market’s medium-term is bullish.
3. The stock market’s short-term is 50-50

Let’s go from the long-term to the medium term, to the short term.

Long Term

Banks’ lending standards continue to ease (trend downwards). Lending standards tend to get tighter in the last rally of a bull market.

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Heavy Truck Sales are still trending higher. This is a long-term bullish sign for the stock market. Heavy Truck Sales tend to trend downwards before economic recessions and equity bear markets begin. 

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Initial Claims and Continued Claims are still trending lower. This is a long-term bullish sign for the stock market. Initial Claims and Continued Claims tend to trend higher before bear markets begin. 

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Labor Market Conditions are still healthy. This is bull market behavior. Bear markets start when Labor Market Conditions are much weaker.

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However, this bull market doesn’t have many years left. We are definitely in the late stages of this bull market. Corporate Unit Profits tend to peak in the middle of a bull market and economic expansion. Corporate Unit Profits peaked in 2014.

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Net Earnings Revisions are still significantly above zero. Net Earnings Revisions tend to approach zero just before a bear market begins.

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And lastly, Citigroup’s Panic/Euphoria model is starting to show signs of Euphoria. In the past, Citigroup’s Model has been early in calling the stock market’s major tops.

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If Citigroup’s model continues to register “euphoria” readings for the rest of 2018, then the stock market will probably make an important top in 2019.

Medium term

The medium-term remains bullish, which suggests that the S&P 500 (U.S. stock market) will go up in the next 3-6 months. Since there are only 4.5 months left in 2018, this means that the stock market will probably go up for the remainder of 2018, although it may do so in a choppy manner.

First of all, VIX has completely collapsed from its February 2018 high. The stock market’s volatility has disappeared. When this happens, BOTH VIX and the S&P 500 (U.S. stock market) tend to go up in the next few months.

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The U.S. stock market was very quiet during the beginning of last week. The saying “don’t short a dull market” is true. “Dull markets” tend to grind higher.

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Don’t be afraid of the rising U.S. Dollar or weakness in emerging markets (“contagion”). When the USD becomes as overbought as it is right now, the U.S. stock market tends to keep going up. The probability of “contagion” is low. 

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Short term

Earlier last week we said that the stock market would face some short-term weakness because VIX had probably made a short-term bottom.

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So far this short-term weakness has played out. The U.S. stock market has made a small pullback. Although this short-term weakness might persist for another 1-2 weeks, it is very limited. The Put/Call ratio has spiked. Year-to-date, the stock market was either at a short-term bottom or close to making a short-term bottom when the Put/Call Ratio was this high.

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Conclusion

The stock market’s long-term and medium-term outlook is bullish. Short-term weakness may persist for another 1-2 weeks, but the key point is that this short-term weakness is limited.

I mostly ignore the short term, because no matter how certain you are about the short term, it is rarely better than a 50-50 bet. Focus on the medium-long term.