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Preparing For The End Of The Cycle: January Update

Feb. 04, 2019 7:40 PM ETDIA, QQQ, SPY, MMM, V, MA, TCEHY
Daniel Schönberger profile picture
Daniel Schönberger


  • January has been an extremely good month for stocks, but in my opinion we only witnessed a bullish corrective wave within a bearish impulsive wave.
  • While weekly initial unemployment claims are down, the yield curve is still pretty flat and margin debt levels continue to contract.
  • We should not forget the big picture and the bird‘s eye view: longest bull market in history and extremely high valuation.
  • Facebook, MasterCard, Visa and 3M all reported at least decent earnings.

At the end of December, investor sentiment was extremely negative – almost all over the world. The CNN Fear & Greed Index, for example, was signaling extreme fear, but after the bears were in charge for three months and the major US indices (almost) hit the 200-week moving average, a temporary reverse seemed likely and after Christmas the bulls took over again.

Like I mentioned several times, my series “Preparing for the End of the Cycle” is built on the premise that the stock market will decline and we will enter a steep bear market so that even high-quality companies without any fundamental problems will become bargains. Although sentiment shifted and is again rather bullish and signaling maybe even greed, I will keep my series going as I still think we need to prepare for the end of the cycle, which we haven’t seen yet.

Similar to my last monthly updates, I will first look at the macro picture and some macro indicators and then look at the individual stocks covered so far and describe noteworthy developments.

Macro View

For several months, I am now looking at a few indicators that I consider to be leading indicators – for the stock market, but especially for the general economy. On a monthly basis we looked at the NYSE margin debt levels, the initial unemployment claims and the yield curve. And in this article, we will also look at the bigger picture to put these indicators into perspective.

Weekly Initial Unemployment Claims

One of the leading indicators is the number of weekly initial unemployment claims (seasonal adjusted numbers). In contrast to the unemployment rate, the initial unemployment claims are a very good early indicator as the number is published weekly and we can see new developments with almost no time delay. Additionally, it is one of the

ChartData by YCharts

This article was written by

Daniel Schönberger profile picture
Part-time investor and contributor for Seeking Alpha since 2016. My analysis is focused on high-quality companies, that can outperform the market over the long-run due to a competitive advantage (economic moat) and high levels of defensibility. Focused on European and North American companies, but without constraints regarding market capitalization (from large cap to small cap companies). My academic background is in sociology and I hold a Master’s Degree in Sociology (with main emphasis on organizational and economic sociology) and a Bachelor’s Degree in Sociology and History.I also write about investing, economy and similar topics on Medium: https://medium.com/@danielschonberger

Analyst’s Disclosure: I am/we are long CMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own derivatives which are profiting from a declining Nasdaq-100 and Dow Jones Industrial Average.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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