Thoughts

1. We’ve exited the “blackout” period for stocks buybacks, which will be bullish for the stock market this month
2. China’s “crashing” stock market is not a bearish factor for the U.S. stock market
3. Auto sales are rolling over, which suggests that this bull market probably only has 1 year left.
4. COT sentiment data is bullish on the Japanese Yen, bullish on the Australian dollar, bullish on the New Zealand dollar, and bullish on the Swiss Franc.

1 am: We’ve exited the “blackout” period for stocks buybacks, which will be bullish for the stock market this month

As we’ve shown repeatedly over the past few months, corporate buybacks are surging this year. This is a bullish factor for the stock market in the medium term (more buyers for stocks).

Under SEC rules, companies are required to pause stock buybacks approximately 5 weeks (1 month) before they release their earnings reports.

Of course not all companies release their earnings reports on the same day. But since most companies do release their earnings during “earnings season” months (January, April, July, October), these months are also typically blackout months.

This chart demonstrates how corporate buybacks tend to fluctuate throughout the year.

As you can see, July typically does not see a lot of corporate share buybacks because it is a blackout month. However, August usually experiences the largest % of share buybacks.

Now that we are in August, the renewed vigor in share buybacks could push the S&P 500 to new highs by the end of this month. The S&P is already very close to new highs.

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1 am: China’s “crashing” stock market is not a bearish factor for the U.S. stock market

The Chinese stock market has fallen significantly this year due to Trump’s trade war. This has investors worried about that China’s stock market crash will lead to “contagion in the U.S.”

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I don’t think China’s “crashing” stock market is a bearish factor for the U.S. stock market. With the U.S. economy experiencing 4%+ GDP growth, we have not seen any economic contagion from China to the U.S. Moreover, it’s perfectly normal for the Chinese stock market to go down while the U.S. stock market rises.

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It is not unusual for the U.S. and Chinese stock markets to move in different directions on a 3 month rolling basis.

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1 am: Auto sales are rolling over, which suggests that this bull market does have many years left.

As I’ve said before, big ticket purchases are usually the first to peak/deteriorate during a bull market and economic expansion. Then Initial Claims starts to deteriorate. Then the stock market tops. And finally the economy enters into a recession.

The latest reading for Total Vehicle Sales demonstrates that this economic indicator continues to trend sideways.

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With Total Vehicle Sales trending sideways, Initial Claims will probably bottom sometime laterthis year or in the first half of 2019. The stock market usually tops half a year after Initial Claims bottoms.

1 am: COT sentiment data is bullish on the Japanese Yen, bullish on the Australian dollar, bullish on the New Zealand dollar, and bullish on the Swiss Franc.

COT data is the most popular sentiment indicator for commodities and currencies.

The current COT data is slightly bullish for the Japanese Yen

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The current COT data is bullish for the Australian dollar.

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The current COT data is bullish for the New Zealand dollar.

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The current COT data is bullish for the Swiss Franc

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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.