Monthly Trend is Bearish – Daily Trend is Bearish
Current Stock Market Outlook Allocation
Neutral and in Cash on the S&P-500 since January 15th near 1850, with Buy on a weekly close above 2000 and Sell on a weekly close below 1800.
Previously Bullish the S&P-500 since December 2012 near 1450.
A major high in stocks in 2015 is very likely
We have a number of cycles suggesting a major high in 2015, and Global Markets, Sectors and Indicators are turning back down without making a new high. This makes the 2134 high in the S&P-500 a likely multi-year high, especially with the third weekly close below 1900. A typical Bear Market lasts 12-24 months, and some important cycles point to May 2018 as a possible end to this one.
Retail Sales are warning like in early 2008
Retail Sales Year over Year are weaker than it appears on this chart, since January 2015 was very low and easy to beat. The Month over Month number was only 0.2% and remains weak like in early 2008. This could be dangerous and is a drag on future GDP, but we need to see a negative Retail Sales report to turn this bearish. With the Christmas shopping season now behind us, and the negative stock market in January and February, we are likely to see lower Retail Sales into April as seen in about half the years historically.
Job growth is slowing since early 2015
The Jobs report was still positive, but well below the 200,000 average seen in 2014. In fact the last 6 months saw 3 numbers well below the average of 2014 and the poor earnings are not likely to cause a surge in hiring anytime soon. This suggests that Job growth will continue to slow in 2016, and any numbers close or below 100,000 is likely to pull the markets even lower.
GDP suggests a recession like 2001 and 2008
The first estimate for Q4 GDP came in at 0.7% dragged down mostly by imports. Services contribute 45% to the GDP number, and the ISM Non-Manufacturing index has been declining since October 2015 suggesting a further drag on GDP and negative revisions to the 0.7% number are likely. Annual GDP is now 1.8% and below the 2.0% level necessary to avoid a recession.
ISM Non-Mfg. is turning down like late 2000
The ISM Non-Manufacturing index represents 45% of GDP and is a good indicator of future GDP. It gave early warnings in 1998 and 2007, and more sudden collapses in late 2000 and now early 2015 suggesting a recession is upon us.
Sentiment is like 1973 (Bear) or 1983 (Bull)
The Michigan Sentiment Survey warned ahead of the 2008 crisis and is acting like 1973 which saw a large drop but also 1983 which began a rise into 1987. The jump in Sentiment would be bullish if it was matched by rising GDP and if it did not start to drop again like in 1973.
Venus Altitude predicted the July 2015 high
The Altitude of Venus is the largest component of the Bradley indicator, but the most accurate signals come from the Venus retrograde periods when the Speed of Venus goes to zero and reverses. Examples of this are the 77 month turns between the October 10, 2002 and March 9, 2009 lows and 77 months later is the current pair of dates on July 25th and September 8th, 2015 correctly predicted a significant high in July 2015.
Cumulative New Highs are in a Bear market
The Cumulative New Highs minus New Lows are the most reliable long term indicators. They have turned bearish with the move below 2000, and have since resumed their decline confirming a Bear Market is on the way. They also suggest another 10% decline in February that would take the S&P-500 below 1700.
Historical Down Volume is in a Bear Market
The 200 day Nyse Down Volume is rising like in 2000 after being as overbought as the March 24, 2000 high. The current level suggests that we are only 25% of the way down and that another 30% decline into Fall 2017 is likely. The Nasdaq Up/Down Volume also crossed into Bear market territory and suggests another 10-15% down before we can get a larger 6 week rebound.
A Kondratiev shift in Rates is coming
Kondratiev wrote about a cycle of growing debt and low rates in one generation causing rising rates and debt deflation for the next generation. The Rates cycle came close to a low in late 2012, but will most likely occur in late 2017 or even 2022. However, do not expect rates to rise quickly since the Central Bankers who fear Debt Deflation the most will do their best to keep Rates low, even using negative rates. Rates did not rise significantly until the 1950’s or 20 years after the Depression started and we are far from such a low. The relative Yield Curve shows that when the 5 year rises above the 10 and 30 year, a recession is likely within a couple of years. This is another clue that a recession is very likely in 2016, and that means at least a 40% decline from the 2015 highs.
The Yield Curve is close to a Recession
An inverted Yield Curve used to warn of a recession but the Central Banks have distorted rates quite a bit. The ratio of the 5 and 10 year rates is currently the best to detect the large shifts in allocation necessary for a +20% decline. This indicator is failing for the second time after breaking the bullish trend line, which is a warning like in late 2000 and 2007.