Evaluating the Stock Market: Where's it going?

Of course, the question "Where's it going?" is rhetorical. I cannot answer that, nor can anyone else, if they're honest (though many pundits and talking heads will try to convince you that they know: they do not). 

However, there are some indicators that can try to show trends. A market trend is very important, because a strong trend either up or down can bring most stocks with it. Not all; there will always be stocks that do not follow along.

When deciding whether I'm in or out -- and these are for long-term investing (weeks and months) for my retirement account, not swing or day trading -- I look at these indicators (and I provide a brief synopsis of what I see using the SP500 (SPY) as an market index):

1. What's called a curve chart. This will give me an idea whether prices tend to be expensive, or cheap. 

Based on a weekly chart, stocks are expensive. They can still go higher, but may hit some resistance. 

2.  The overall trend. Is it up, sideways, or down.

Based on a daily chart, the trend is up. However, looking a little bit more short-term, on a 60-minute chart, the trend may be reversing, based on the last week of trading. (See chart below).  

3. Short-term trend chart, looking for entry and exit points. (Short-term is relative to the investor; it could be hours, days or weeks).

I'm looking for confirmation of the trend mentioned in #2 above. The price of the future contracts for the SP500 has moved through and below a supply area of 2971. If it continues and breaks below 2963, I might look at this as a trend reversal.

4. Earnings. Investors can bid prices up or down based on emotional issues, like world-wide events or what the Fed is doing, but long term, the underlying factor of stock prices is company earnings.

Only about 15% of companies have reported Q2 earnings, so this is still up in the air. Earnings were a little softer in Q1 2019 vs. Q1 2018, so it will be worth paying attention to this. Generally, I only look at earning in detail when I'm doing my fundamental analysis of individual companies. 

5. The Shiller PE Ratio and the Buffet Indicator. These will indicate whether the overall market is overpriced.

The Shiller ratio is at 30.36. The mean is 15.73. Stocks are relatively expensive. The Buffet indicator (145) shows stocks as significantly overvalued. A value of 100 means stocks are fairly valued. 

6. The economy. I look at housing, consumer spending, LEI and interest rates. You can follow these on Econoday, which provides information on many reports. 

Based on the above indicators, for my own personal retirement accounts, I've place stop orders on my stock and bond positions, and two sold off this week. This protects profits. I may buy back in a cheaper prices. Otherwise, its a hold and wait. I am not buying anything new at this time. I have about 50 percent of my funds in money markets. 

A trend reversal may be in the making.