I want everybody to start getting psychologically prepared to go long stocks. I know it’s hard because of the drubbing the stock market took in October.
You need to remember that everything that has taken place in October has so far been normal seasonality. October is the “trick or treat” month. We got a wicked trick in October instead of a treat. That is all that has taken place so far.
The Employment Report on Friday, November 2, 2018, was more evidence that October was a healthy correction in bullish uptrending market.
During the mature phase of an economic expansion, monthly payroll gains of 150,000 or so are considered healthy. Heading into recession, payroll gains begin to move below 100,000 and then, in confirmation of recession, into outright contraction. Coming out of recession, payroll gains are expected to surpass 250,000 per month.
The consensus was for between 150,000 to 231,000 jobs gained in October, the actual number was 250,000 and that’s with the slowdown caused by hurricanes!
Manufacturing beat expectations with a 32,000 jobs gain, professional & business services where payrolls rose 35,000, and labor in construction shot up to 30,000 jobs.
But wait there’s more!
What’s really awesome is the growth in average hourly wages, up +3.1 percent.
Now we see why the Federal Reserve has been so aggressive in hiking rates. They have been accurately predicting future economic growth and responding to that growth in the present. Congrats to the Fed.
Keep in mind that the negative impact that rising rates in the U.S. are having on emerging markets is a problem that can come back and bite us but for now, all systems are operational and a go Captain!
What am I waiting to see to go long? I’m watching the Russell 2000 because it has a tendency to lead markets both up and down.
Specifically, I’m waiting for a cross of the -DI and +DI lines on the ADX indicator. When the +DI (green) line crosses above the -DI (red) line, that will likely be when I’m going to make a move.
We have price breaking above the Kaufman moving average (purple line) which is a buy signal.
We had a Parabolic SAR buy signal on Thursday, November 1, 2018.
Notice that the Russell 2000 VIX has red high-low bars now which favors the Russell 2000 bulls.
The final confirmation we need is the +DI line crossing above the -DI line. When we get that, it’s time to go long stocks.
What’s really delaying everything right now is the mid-term elections. If Democrats win back both the House and Senate, the market takes a big move lower.