The OK Boomer decade

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the those email alerts are updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities*
• Trend Model signal: Bullish*
• Trading model: Bullish*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of the those email alerts is shown here.


Is demographics really destiny?
'Tis the season for strategists to publish their year-end forecasts for 2020. Instead of participating in that ritual, this is the second of a series of think pieces of what might lie ahead for the new decade (for the first see China, paper tiger).

It is said that demographics is destiny. Tom Lee at Fundstrat recently highlighted changes in spending and debt patterns. As the Baby Boomers age and fade into their golden years, the Millennial generation is entering its prime and they are poised to seize the baton of consumer spending, and eventually, political leadership.

Demographics is destiny holds true only inasmuch as people's desires at different ages are roughly the same. But their desires are constrained by financial circumstances. The combination of a generational shift and differences in financial circumstances has profound implications for the political landscape, policy, and investing.

I believe that the coming decade is likely be the "OK Boomer" decade that sees a passing of the baton to the Millennial cohort characterized by:

• A greater focus on the effects of inequality
• A political shift to the left
• There are two policy effects that can be easily identified:
1. The rise of MMT as a policy tool
2. The rise of ESG investing

The question of whether these developments are good or bad is beyond my pay grade. However, investors should be prepared for these changes in the years to come.

The full post can be found here.

China, Paper Tiger

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the those email alerts are updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities*
• Trend Model signal: Bullish*
• Trading model: Bullish*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of the those email alerts is shown here.


Defining the China threat to America
'Tis the season for strategists to publish their year-end forecasts for 2020. Instead of participating in that ritual, this is the first of a series of think pieces of what might lie ahead for the new decade. We begin with the difficult challenge of Sino-American relations.

What is the nature of the Chinese threat to America? On the surface, it is the threat of the emergence of a new economic power, as illustrated by the FT (h/t Liz Ann Sonders). As recently as the year 2000, the US was the dominant global exporter.

Fast forward to 2019, China is ascendant, and America is in retreat.

The full post can be found here.

Is the market melting up?

Mid-week market update: I am leaving on a seasonal family vacation tomorrow, so posting will be lighter than usual. While the usual weekend publications will continue, tactical market interpretations are problematical this time of year when liquidity is low. However, here are some guidelines on how to think about the stock market for the remainder of 2019.

Recently, there have been more voices calling for a market melt-up. Bloomberg reported that BAML strategist Michael Hartnett called for a SPX target of 3,333 by March 3. Marketwatch also cited bullish forecasts by UBS Global Wealth Management Chief Investment Officer Mark Haefele, and Morgan Stanley's Michael Wilson.

The technical pattern is also starting to look like the melt-up and blow-off top that began in late 2017. The SPX overran rising trend lines (twice) while shrugging off negative RSI divergences. In fact, neither the 5-day nor 14-day RSI flashed any warnings when the market finally topped out in January 2018. Today, the index has rallied above one rising trend line. Compare the late 2017 melt-up behavior with the orderly advance of mid-2018, which never significantly breached the uptrend line. and weakened as RSIs flashed negative divergences. Equally impressive is the NYSE new highs - new lows seen in the current advance.

Is the market melting up?

The full post can be found here.

Factor investing: Theory vs. practice

As regular readers know, I have been an advocate of taking an overweight in cyclical exposure in equity portfolios (for the latest update, see Adventures in banking). While I continue to believe that the approach is sound, the reality has been less than fully satisfactory in the US. Among the cyclical groups, the semiconductors are on fire, and homebuilding stocks are weakening but remain in a relative uptrend. However, both industrial and transportation stocks have failed to hold their upside breakouts through relative downtrends, though they are still exhibiting bottoming patterns.

Here is what I believe is wrong, and it is a lesson between theory and practice in factor investing.

The full post can be found here.


Publication Notice: I will be taking some time off during the holidays starting next week, so posting will be lighter than usual. I will publish the regular weekend commentaries, but there will be no mid-week posting unless the markets experience wild volatility. Service will resume in the New Year.

Adventures in banking

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the those email alerts are updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities*
• Trend Model signal: Bullish*
• Trading model: Bullish*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of the those email alerts is shown here. As well, please join and "like" our Facebook page here.



Would you buy this chart?
Now that we have greater clarity on the Sino-American trade relationship, as well as Brexit tail-risk, can we get back to simple task of investing?

Consider the following question. Would you buy this chart, or factor? It was in an uptrend from 2011 to 2018. It consolidated sideways for about two years, and recently staged an upside breakout to fresh highs.

It is the ratio of the KBW Bank Index to the CRB, or what I call my Fed Report Card. It measures the Fed's ability to maintain growth and financial stability while keeping asset inflation (CRB) under control. Despite Powell's dovish tilt after the latest FOMC meeting, the Fed is performing well on that metric.

The full post can be found here.

Here comes the beta chase

Mid-week market update: Notwithstanding any issues traders may have with short-term volatility, the market is setting up for a year-end beta chase Santa Claus rally. After a prolong period of defensive posturing, equity fund flows are turning strongly positive again.

The full post can be found here.

The market is oversold? Already?

I was not at my desk and out at some meetings on Monday. When I returned near the end of the day, I nearly fell off my chair when I saw the VIX Index had spiked above its upper Bollinger Band again, indicating an oversold market.

Is the market oversold? Again? So soon?

The full post can be found here.

How far can Tariff Man dent the stock market?

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the those email alerts are updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities*
• Trend Model signal: Bullish*
• Trading model: Bearish*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of the those email alerts is shown here. As well, please join and "like" our Facebook page here.



Tariff Man returns
The markets took on a decided risk-off tone early last Monday when President Trump, aka the Tariff Man, made an early morning tweet to announce steel and aluminum tariffs on Brazil and Argentina.

The markets took further fright based on Trump's comment that he had no timetable for a trade deal with China, and he was willing to wait until after the 2020 election to conclude an agreement. More importantly, Edward Lawrence of Fox Business reported that there are no current plans to delay the next round of tariffs scheduled for December 15, which is an unanticipated development as the market consensus was they would be delayed.

If the December 15 tariffs are enacted, what is the expected damage? How will that affect my thesis of a cyclical rebound (see An upcoming seismic shift in factor returns)?

The full post can be found here.

Assessing the technical damage

Mid-week market update: The stock market weakened on Monday when Trump's early morning tweet indicated that he was slapping on steel and aluminum tariffs on Argentina and Brazil. The sell-off continued into Tuesday when Trump said in a news conference that he was in no hurry to do a trade deal with China, and he was willing to wait until after the 2020 election.

The market was already vulnerable to a tumble two weeks ago when it violated a rising trend line. This was followed by a rally to kiss the daily upper Bollinger Band, but it could not rally above the breached trend line.

The SPX gapped down on Tuesday, but formed what appeared to be a reversal candle, which was accompanied by a mild oversold reading on the 5-day RSI. The reversal was confirmed when this morning when equity future began to bounce back in sympathy with European stocks. The rally was further boosted by a Bloomberg report that "the U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang".

How serious was the sell-off? What's the technical damage?

The full post can be found here.

The Achilles Heel of my bull case

In response to my last post (see Buy signal confirmed: It's a global bull), I received an email yesterday from a long-time reader who observed that I was channeling the perennially bullish Chris Ciovacco. While my post yesterday highlighted the monthly MACD buy signal on global stocks, Ciovacco's latest weekly video referenced the monthly MACD buy signal on the DJIA.

That said, no one could accuse me of being a permabull or permabear. My track record of major market speaks for itself. Most notably, I was correctly cautious in August 2018 ahead of the major top, and turned bullish just after the bottom in January 2019. While I was overly cautious during the summer and I expected a deeper valuation reset, I did turn bullish again after the market's upside breakout in late October.

If history is any guide, past monthly MACD buy signals have seen prices higher 6 and 12 months later 100% of the time. However, there is one Achilles Heel of the bull case, and it's China.

The full post can be found here.

Buy signal confirmed: It's a global bull

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the those email alerts are updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities*
• Trend Model signal: Bullish*
• Trading model: Neutral*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of the those email alerts is shown here.



Long-term buy signal confirmed
A month ago, I highlighted a long-term technical buy MACD signal on the monthly Wilshire 5000 chart. The buy signal was not evident in global or non-US equities. As the month of November drew to a close, I can confirm that the rest of the world has caught up, and similar MACD buy signals can be found in other markets. History shows that these displays of long-term price momentum have resolved themselves in strong multi-year gains, and the index has seen gains 6 and 12 months later 100% of the time.

This week, we review sector leadership, and where the best upside potential can be found in the markets.

The full post can be found here.