Thoughts

1. The NYSE Composite is falling. NOT bearish for the U.S. stock market.
2. This is about to become the longest economic expansion in U.S. history. Here’s proof that economic expansions and bull markets don’t die of old age.
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.

1 am: The NYSE Composite is falling. NOT bearish for the U.S. stock market.

Here’s one of latest false narratives for the U.S. stock market, brought to you by permabear David Rosenberg:

Zerohedge has recently echoed David’s sentiment with:

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I don’t think David or Zerohedge understand what the NYSE Composite is. From Wikipedia:

The NYSE Composite covers all stocks listed on the New York Stock Exchange, including American stocks AND foreign stocks. Over 2,000 stocks are covered in the index, of which over 1,600 are from United States corporations and over 360 are foreign listings; however foreign companies are very prevalent among the largest companies in the index: of the 100 companies in the index having the largest market capitalization (and thus the largest impact on the index), more than half (55) are non-U.S. issues.

As you can see, the NYSE Index is not representative of the “U.S. stock market”. The NYSE is heavily weighed down by foreign (non-U.S.) stocks. The S&P 500 is representative of the U.S. stock market. The NYSE Index has lagged the S&P 500 significantly because foreign stocks markets (e.g. China, emerging markets) are getting crushed by Trump’s trade war.

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1 am: This is about to become the longest economic expansion in U.S. history. Here’s proof that economic expansions and bull markets don’t die of old age.

One of the most frequently cited bearish phrases is “this economic expansion and bull market are one of the longest in history, hence it must die because of old age”.

This is factually incorrect. There is no age limit on how long an economic expansion and bull market can last. Here’s the proof.

Bull markets and economic expansions have and can last much longer than 10 years. How long a bull market and economic expansion lasts depends on the country’s individual circumstances at the time. For example:

1. Canada and the UK have experienced 16 year economic expansions.
2. Japan experienced a 17 year economic expansion.
3. The Netherlands has experienced a 25 year economic expansion.
4. Australia’s current economic expansion is 26 years and counting.

The current U.S. economic expansion comes after a financial crisis (2008). Historically, economic expansions that come after financial crises ALWAYS last longer than normal economic expansions. This is because the economy starts from a much weaker point, hence it needs more time just to recover and get back to normal.

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 went down a little (from 219k to 213k). However, the key point is that Initial Claims are still trending lower right now. Initial Claims recently made a new low a few weeks ago.

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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).

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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This chart demonstrates the inverse correlation between the S&P 500 and Initial Claims. A downwards trending Initial Claims = medium-long term bullish for the stock market.

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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 up a little from the previous week’s reading (from 1.726 million to 1.755 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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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.