Stock Market Outlook 04.23.3018

Stock Market Outlook 04.16.2018

Our weekly checkup/outlook is meant to give me a macro-view of the market. We tend to mostly ignore news and politics when it comes to effects on the market as most is generally empty prognostication.

Instead, we look to a few reliable sources to get a read on the state of the market. A weekly outlook gives us some relief from day-to-day fluctuations, while still allowing for relative short term opportunities and trends.

Index Technical Indicator & Recent Performance Summary
  • Not much change from last week overall. Overall, we’ve seen a decline in volatility
  • This week, I’ve added changes over 5 different time periods.
  • Notably, CQQQ  (China tech) is down over 8% over the last month, while HACK (cybersecurity) is up over 5%.

 

weekly stock market technial indicators 04.23.2018

Data via TradingView.com (Click here to get 30% off a Pro subscription.)
Scores based on below. More weight given to 30D ratings than 1D ratings.
-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Gannon’s Risk Insight

Old Prof sees improvements in market conditions all around:

The gain for the week was about 0.5%, and the trading range was only about 2%.

Short-term trading conditions improved significantly this week.

The long-term fundamentals and outlook are little changed. The long-term technical health is back to strongly bullish.

He also makes a note about the importance of understanding sources of information:

Since most people pay little attention to the background of those claiming authority, they might not notice that economists specializing in the business cycle are reaching a different conclusion from most others. These observers, new to the topic and eager to make a mark, use reasoning like the following:

The age of the business cycle – known to be irrelevant.
Guessing when an indicator like the yield curve will change – the “forecasting the forecast” error.
Speculating about the impact of proposed policies – even though we don’t know whether they will be adopted or what the effects might be.

StockTrader Take

StockTrader believes market conditions remain similar to last week.

Short term: Essentially the same spots we were as last week on these 2 charts.

Long term: Still very positive for the “buy and never sell” crowd.

Technical Update

Brief summary from Hacked’s weekly technical update (subscription required):

  • Short-term bullish momentum is expected to subside after all indices broke below their respective short-term supports (white trendlines, which carried prices higher since the April lows).
  • Potential breaks of the intermediate-term supports for both S&P 500 and NASDAQ will carry significant bearish implications.

 

Other articles of notes

Netflix: The Future of Entertainment or House of Cards? by Aswath Damodaran: 

At the end of 2017, Netflix had more subscribers outside the US than in the US, and it is bringing its free spending ways and its views on content development to other parts of the world, perhaps bringing Bollywood and Hollywood closer, at least in terms of shared problems.

In summary, Netflix has built a business model of spending immense amounts on content, using that content to attract new subscribers, and then using those new subscribers as its pathway to market value. It is clear that investors have bought into the model, but the model is also one that burns through cash at alarming rates, with no smooth or near term escape hatch.

The value per share of $172.82 that I estimate for Netflix is well below the stock price of $275, as of April 14, 2018. My value reflects the story that I am telling about Netflix, as a company that is able to grow at double digit rates for the next decade, with high value added with new users, while bringing its content costs under control

Zillow, Aggregation, and Integration by Ben Thompson

the best outcome for Zillow was to be an aggregator but not an integrator: the company was completely removed from the purchase process.

More broadly — and this really gets at why Zillow is different — Aggregators that change industries (including Aggregator-like Amazon and Apple that deal with physical goods) integrate the customer relationship with however it is their industry generates revenue; Zillow, on the other hand, was completely divorced from the home selling-and-buying process.

 …
I can, though, see where Zillow is coming from: no one thinks the North American real estate market is the way it is because that is somehow optimal or good for consumers; the only folks that benefit from the status quo are real estate agents that continue to collect 6% of the purchase price even as their responsibilities, particularly in the case of the buying agent, run in the opposite direction of their incentives
Here, though, Zillow’s status as an almost-Aggregator looms large: we now have years’ worth of evidence that realtors will do what it takes to ensure their listings appear on Zillow, because Zillow controls end users. It very well may be the case that realtors will find themselves with no choice but to continue giving Zillow the money the company needs to disrupt their industry.
Our Take

Most of the recent tradewars talk has subsided and the markets seem to be faring better with volatility subsiding.

We’re bullishly optimistic in both the short and long term. No new positions recently and would consider adding something if the right opportunity came along, with no concern for a general bearish market that could harm any stock.

 

Crypto Market Outlook 04.16.2018

Crypto Market Update

Our weekly take on the crypto market. We primarily look at BTC and ETH, as it’s rare to see altcoins outperforming both. Still, we track the crypto market as a whole, looking for new opportunities and we hold a handful of altcoins.

TradingView Technical Indicators

BTCUSD – Buy signals on 1D and 30D, while neutral on 7D.
ETHUSD – Signals remain bearish with sell signals on 1D, 7D, and 30D basis

WooBull Charts

NVT RatioThis long-term cycle tracking ratio is very high, which is worrisom as it typically signifies a significant drop may be coming.

 

Bitcoin NVT Signal chart 04.16.2018

NVT Signal – Shorter-term signal has moved upward significantly over the last week and sits around 100. In the original post introducing NVT Signal, 150 was indicated as an overbought signal.

Overall, there is potential for the upward trend to continue in short-term, though NVT Ratio suggests a downturn is looming.

Google Trends

No significant changes, though a small bump this past week

CoinMetrics

kalvichkin nvt - btc

Kalvichkin’s NVT – Similar to NVT Signal, this indicates BTC is trending upward in the short-run. ETHUSD shows very similar results.

kalvichkin nvt - eth

Articles of Note

Blockchain is not only crappy technology but a bad vision for the future:

There is no single person in existence who had a problem they wanted to solve, discovered that an available blockchain solution was the best way to solve it, and therefore became a blockchain enthusiast.

Many good points in this post, though it seems to overlook that applying blockchain to existing problems may not be the best utilization. Instead, there are new possibilities, such as those seen in utility tokens.

Cryptoassets: Flow & Reflexivity :

The experience of the last six months should serve as a lesson for cryptoasset investors about the sensitivities of the current crypto market structure, and the importance of being cognizant of flows and their second order effects. As for where we currently stand, concentrated tax selling is likely nearing completion, and reflexivity has driven sentiment to bearish extremes.⁴ Now we must wait and see how far the reverberations of reflexivity take crypto, before the market returns to a focus on fundamentals-driven growth

Our Take

We’re looking at BTC and crypto in general as a short-term opportunity. It still seems like a risky time, as NVT Ratio and NVT Signal imply a further correction is due.

Stock Market Outlook 04.16.2018

Stock Market Outlook 04.16.2018

Our weekly checkup/outlook is meant to give me a macro-view of the market. We tend to mostly ignore political talk and the potential effects on markets. Too much of it is empty prognostication. There are likely some ties, but typically too difficult to correlate market movement to political actions.

Instead, we look at what is happening on a weekly basis, with much attention given to current risk/reward ratios.

TradingView Technical Signals

Most index signals have returned to positive scores, with the exception of BOND.

Financials (VFH) are still somewhat weak, along with China Tech (CQQQ) and the BRIC index BKF.

Notably, VIX has dropped considerably, especially on a weekly basis.

market update trading view signals

Data via TradingView.com (Click here to get 30% off a Pro subscription.)
Scored as follows:
-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Gannon’s Risk Insight

Old Prof believes little has changed from last week, with poor short term conditions. Long-term risk has risen over the last 2 weeks.

Short-term trading conditions remained poor this week. In mildly bearish conditions our trading approaches can still be profitable, but that might not be true for everyone. We continue to monitor the technical health measures on a daily basis. If this indicator goes to fullish bearish, we liquidate trading (not investment) positions. We are not quite at that point, but I have rounded the result to “5.” This is not a forecast that the market will decline. It indicates increased difficulty in trading profitably.

The long-term fundamentals and outlook are little changed. Based upon historical data for this indicator, I have increased the 9-month recession probability to the 18% range. I am monitoring, but not yet especially worried. The long-term technical health is 1.5, but I rounded it up.

StockTrader Take

StockTrader says conditions have improved and there’s a need to remain cautious.

Short term: Things look better than a week ago but some more work is needed over the intermediate term. The S&P 500 DID hold that 200 day moving average despite testing it quite a few times. That said breaking over 2800 would be a new “higher high” and would signal and all clear – that is quite a ways away. Also, breaking over the trendline connecting the 2 recent highs of January and March would be a needed first step.

Also of note on earnings season, which is expected to be strong:

Earnings season will begin in earnest with the next few weeks bringing most of the big hitters. Earnings season is expected to very strong – it will be interesting to see how companies guide up the rest of the year due to the tax cuts.

My take is that enterprise software companies will report especially strong earnings, gaining both from direct tax cuts, as well as other companies spending gains from tax cuts on implementing and improving software.

Other articles of notes

Sentiment Now Broadly Bearish:

In prior posts highlighting investor sentiment data it has been noted that sentiment data is more actionable at market bottoms than at market tops.

With much of the sentiment now decidedly bearish, just possibly the market is nearing a bottom.

Update: Predicting the next recession:

[CR April 2018 Update: This was written in 2013 – and my prediction for no “recession for a few years” was correct. This still seems correct today, so no recession in the immediate future (not in 2018). ]

Our Take

Market is volatile yet economy remains strong. Some concern over war but most political talk of late has been of little substance. Tradewars appear overblown, while tax law changes seem undervalued in many companies. Enterprise software companies remain a favorite. If things look week after earnings season, will need to re-evaluate.

 

Market Outlook April 02, 2018

Technical Indicators

All of the indexes we follow have turned to bearish signals on daily timeframes. HACK remains the only index with a ‘buy’ rating on weekly timeframes.

With the exception of BOND, all indexes we follow still have buy ratings on monthly timeframes.

 

-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Score gives 3x weight to 30-day indicators and 2x weight to 7-day indicators.

What others are saying

1 . Old Prof cautions about short-term trading, though believes long-term fundamentals remain positive.

Short-term trading conditions worsened this week. In mildly bearish conditions our trading approaches can still be profitable, but that might not be true for everyone. We continue to monitor the technical health measures on a daily basis. If this indicator goes to fullish bearish, we liquidate trading positions. This is not a forecast that the market will decline. It indicates increased difficulty in trading profitably.

The long-term fundamentals and outlook are little changed. The FOMC decision flattened the yield curve a bit, and that is one component of the C-Score. Based upon historical data for this indicator, I have increased the 9-month recession probability to the 18% range. I am monitoring, but not yet especially worried. Please see James Picerno below.

He also warns that Canadian marijuana stocks may be overvalued:

Pot stocks, according to a cover story in Barron’s. Bill Alpert analyzes the Canadian stocks, comparing valuations to other markets like gold and alcohol. He writes:

As they often do, investors have celebrated this emerging business early by embracing Canadian companies that claim a cannabis connection. Traveling in Canada, cabbies, bankers, and even border guards will tell you their favorites in a bubble that has floated Canadian cannabis stocks to a collective stock-market value above $30 billion. That’s already about half the market capitalization of Canada’s gold mining industry.

 

 

2. At StockTrader, Mark Hanna writes about the potential huge surge in corporate earnings:

2018 will be the year the massive corporate tax cuts boost earnings.

According to FactSet, earnings for companies in the S&P 500 are expected to grow 17.3% in the first quarter. Not only would that represent the fastest pace of profit growth since the first quarter of 2011, but expectations have been swiftly ratcheted up over the past few months. At the end of December, analysts were expecting a growth rate of 11.4%. Much of that increase was due to the recently passed tax-reform bill.

Stocks

  • Solar stocks like SEDG and RUN are holding up well in a volatile market
  • OSTK is down over 40% over the 30 days
  • BSBR (banco santander) has been added to our watchlist after reaching new all time highs with an attractive P/E ratio of ~16. More research to be conducted.

Outlook

Remaining mostly invested and looking into income producing assets and real estate projects to hedge should the market continue showing signs of weakness.

 

Market Outlook March 26, 2018

Technical Indicators

Trading View technical indicators point to sell for daily timeframes, with a mix of buy and sell among weekly timeframes among various indexes. Most indexes remain with a buy indicator evaluated on monthly timeframes.

Notably, SPY has a Strong Buy recommendation on the 30-day timeframe. BOND remains to have very negative technical indicators.

VIX has picked up considerably. In this case, buy and strong buy may be considered inversely when looking at outlook for the general market.

-2 = strong sell
-1 = sell
0 = neutral
1 = buy
2 = strong buy

Score gives 3x weight to 30-day indicators and 2x weight to 7-day indicators.

What others are saying

1 . Old Prof remains bullish on the market:

Short-term trading conditions improved again this week. Once again this shows why you need objective indicators rather than relying on your impressions about events. We continue to monitor the technical health measures on a daily basis.

The long-term fundamentals and outlook have been unchanged through the recent bout of volatility.

He also advises to watch the potential trade wars and to remain be weary of negative headlines:

Impressionistic reaction to headlines should not drive your decisions.

2. David Templeton at DisciplinedInvesting writes that the market appears oversold in the short-term and relatively normal long-term:

On a short term basis the indices appear to be oversold. One measure to evaluate is the percentage of stocks trading above their 50 and 200 day moving averages. The first chart shows only 15% of S&P 500 stocks are trading above their 50 day moving average. The chart shows that this measure can get reach the single digits, but mid to low teens is one indication of a short term oversold market.

Conversely, the percentage of stocks trading above their 200 day moving average is 51%. This percentage falls in the lower end of a long term range, with some oversold levels reaching into the mid to upper teens though.In other words, short term, the market appears oversold, but on a longer term basis, not so much.

3. At TraderFeed, Mark Hanna speculates as to the reasons for the recent volatility (trade wars, facebook, etc.), though there’s always a reason to be found to confirm positive or negative movements, and rarely are they correlated. Regardless, the outcome was a bad week:

Whatever the case, the market suffered badly this past week.    Facebook (FB) and it’s scandal hurt the NASDAQ early in the week, then #TRADEWARS(tm)! hurt Thursday and Friday.   The S&P 500 fell 6.0%! and the NASDAQ 6.5%! on the week

He goes on to point out that things still look good on a long-term basis:

Long term: Even after a massive one week selloff, the NASDAQ is only in the middle of a massive uptrend in it’s weekly chart.

Outlook

We are remaining mostly invested in the market. There are many headlines about a potential negative turn, yet there doesn’t seem to be any underlying reason and certainly no evidence of a long-term downward trend. While there is that possibility, it appears the risk is relatively low and there’s a strong chance of a continue bullish trend overall in markets.

 

Cryptocurrency and Bitcoin in Google Trends

Inspired by a post at WooBull on using Google Trends to detect Bitcoin price bubbles, here’s an updated Google trends graph of the terms “BTC USD” and “cryptocurrency”, which we added for comparison sake.

Predicting where the stock market will go is futile

Good perspective on how to view the stock market from Vitaliy Katsenelson. This was written a few weeks ago after the “correction” early in February:

Nobody but nobody knows what the stock market will do tomorrow, next week or next year. Stock market behavior in the short term is completely random. Completely! You’ll have a better luck predicting the next card at a black jack table than guessing what the stock market will do next.

What will the stock market do next? It’s the wrong question. It’s the question that should never be asked, and if asked should never be answered. Asking this question shows that you believe there is some kind of order to this random madness. There is not. And if you answer with any answer other than “I don’t know,” you’re a liar.

via What will the stock market do next? at Vitaliy Katsenelson Contrarian Edge

On the benefits of trend following investing

The consistency of a trend following strategy’s relative performance vs a 60/40 portfolio (impacting the ability for investors to stick with trend following) is the basis of an argument that’s taken place offline (yes, I also argue offline) with a FinTwit friend who is a huge proponent of buy and hold. It’s progressed to the point that we’ve discussed making a mini (very mini) Buffett style bet related to whether trend following or a 60% US Stock / 40% Bond allocation will outperform over the next five years (with money going to the winner’s charity of choice).

via The Behavioral and Performance Benefits of Trend Following at

Bitcoin moving closely with $SPY

Bitcoin’s case as a store of value has not proven especially strong in the past month, as it’s typically gone the way of $SPY.

Bitcoin and stocks bottomed at almost exactly the same moment. This is bad for Bitcoin. Part of Bitcoin’s appeal is that it is weird, and perhaps does not covary with standard financial assets in traditional ways. But at least yesterday it did, and that should be a force pushing Bitcoin lower.

via Bitcoin and covariance at Marginal REVOLUTION

In US, working age population is larger than ever

From Prime Working-Age Population At New Peak, First Time Since 2007 at Calculated Risk:

The U.S. prime working age population peaked in 2007, and bottomed at the end of 2012. As of January 2018, according to the BLS, for the first time since 2007, there are now more people in the 25 to 54 age group than in 2007.

Demographics is a key reason GDP growth has been slow over the last decade.

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the “baby boomer” generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (25 to 54 years old) from 1948 through January 2018.

As pointed out in the original post, the size of this group surged in the 70s, 80s, and 90s, something not always considered when comparing GDP. This could be a sign of increased GDP in the years to come, though the last time this group peaked in population was 2007.