Thoughts

1. Corporate debt continues to surge. NOT a medium-long term bearish factor for the stock market
2. Dennis Gartman said that “we are in the beginning of a bear market”. This guy is one of the best contrarian indicators out there.
3. Trump’s trade war is a short-term bearish factor for the stock market, but not medium-long term bearish
4. Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.
5. Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

1 am: Corporate debt continues to surge. NOT a medium-long term bearish factor for the stock market

Corporate debt levels continue to trend higher, leaving the permabears “enraged”. Permabears believe that “debt is evil, so debt shouldn’t trend higher” in the long term.

Real (inflation-adjusted) debt is also trending higher.

In reality, corporate debt is unlikely to cause the next economic recession and equities bear market.

1. Corporate debt ALWAYS trends higher in the long term.
2. Corporations have no problem servicing this debt because their cash flows and liquid assets continue to rise in sync with debt levels. In fact, cash flows and liquid assets as a percent of corporate debt are near multi-decade lows, which means that corporations can easily service their rising debt.

1 am: Trump’s trade war is a short-term bearish factor for the stock market, but not medium-long term bearish

Trump’s tariffs on $34 billion in Chinese exports went into effect today, and China is expected to retaliate. In other words, this is another step in the ongoing trade dispute between the U.S. and China.

So far, trade war-related news has been a short-term bearish factor for the stock market. The stock market went down 3 days later in 32% of historical cases. However, this was not a medium-term bearish factor for the stock market, which went up 70% of the time 3 weeks later.

This trade war news is a short-term bearish factor for the stock market but not medium-long term bearish. Perspective matters, and so far the trade war is relatively minor.

1 am: Dennis Gartman said that “we are in the beginning of a bear market”. This guy is one of the best contrarian indicators out there.

Gartman went on CNBC yesterday to say he thinks that the U.S. stock market is in the beginning of a bear market. You can see the interview here

I don’t usually mention individual “analysts” here on the blog because most of them are just “guessing” where the market will go next without actually looking at data, but Gartman is worth noting. This guy is right less than 50% of the time, which is why he’s frequently regarded in financial circles as the “best contrarian indicator”.  Just Google “gartman is a contrarian indicator”, and you’ll find this.

Needless to say, Gartman’s long-term bearish case supports the long-term bullish case for stocks. How this guy constantly appears on CNBC is beyond me.

1 am: Initial Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

The latest reading for Initial Claims went up from the previous week’s reading (231k vs 228k). The key point is that Initial Claims are still trending lower right now.

*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.

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.

1 am: Continued Claims are still trending lower. A medium-long term bullish sign for the stock market and economy.

Continued Claims went down a little bit from the previous week’s reading (1.739 million vs. 1.707 million). But the key point is that Continued Claims are still trending lower right now.

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.

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.

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 1-2 years left in this bull market.

I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a big correction at this point in time. I ignore small corrections. I only sidestep big corrections and bear markets.

I have been long the S&P 500 since September 7, 2017, when it was at 2465.