Sell to the sound of trumpets?

Mid-week market update: Before the war began, I wrote that investors should Buy to the sound of cannons. Historically, investors have been rewarded by buying sudden geopolitically related downdrafts. The corollary is "sell to the sound of trumpets", or news of peace.

US equity indices across all market cap bands staged upside breakouts through resistance yesterday and they pulled back today to test the breakout levels.

Is peace at hand? Are the trumpets sounding?

The full post can be found here.

A breather, or a stall?

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 that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can bsoe found here.

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 email alerts is 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: Bearish*
• 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 those email alerts is shown here.

Subscribers can access the latest signal in real-time here.

A sentiment reset

The stock market staged a relief rally, sparked by excessively bearish sentiment readings. The weekly AAII bull-bear spread had fallen into buy signal territory. Not surprisingly, the stock market bounced. The latest AAII readings have begun to normalize into neutral territory.

Can the bullish impulse continue? Here are bull and bear cases.

The full post can be found here.

Imagining War and Peace

The Russia-Ukraine war has dealt an unexpected shock to the global economy and markets. Even as the world began an uneven recovery from the COVID Crash of 2020 and inflation pressures began to rise, the war has spiked geopolitical risk premiums and exacerbated supply chain difficulties and added more inflationary pressures. From an economic perspective, rising inflation and inflation expectations are forcing central bankers to react with more hawkish monetary policies, which raise recession risk.

It's not a pretty picture. Now that we know what war looks like, let's engage in some scenario planning. Imagine peace. How would the global economy and markets react?

The full post can be found here.

The breadth thrust controversy

Mid-week market update: The strength of the rally off the mid-March lows has been breathtaking. Ed Clissold of NDR Research pointed out that the market experienced several breadth thrust buy signals. The % of stocks above their 10 dma surged from under 10% to above 90% in a short time, which is historically bullish. He also observed that their version of the Zweig Breadth Thrust model using a common stock only universe also flashed a buy signal last Friday.

That's where the controversy begins.

The full post can be found here.

Trading the relief rally

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 that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can bsoe found here.

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 email alerts is 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: Neutral*
• 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 those email alerts is shown here.

Subscribers can access the latest signal in real-time here.

A relief rally

A week ago, I highlighted an observation by Bill Luby that a recycle of the VIX Index below 30 after a prolonged period above that level is historically bullish. Now that the VIX has fallen below 30, how far can the rally run?

The S&P 500 tested support while exhibiting a series of positive RSI and rallied on the hopes of a Russia-Ukraine peace accord. The advance continued even in the face of a hawkish FOMC message. The index violated a falling trend line, which is a positive development.

The full post can be found here.

How to spot a market bottom

Did the stock market make a meaningful bottom last week? Financial markets had been taking a risk-off tone coming into the week, but when the Powell Fed was slightly more hawkish than expected, the market rallied. 

The S&P 500 was -14.6% peak-to-trough on an intraday basis in 2022. Ed Clissold of Ned Davis Research pointed out that the characteristics of cyclical bears and recession bears have been very different. Cyclical bears that don't involve a recession tend to be shorter in length and less severe in magnitude compared to recession bears, though "most non-recession bears include a recession scare".

Here are some ways of spotting a durable market bottom.

The full post can be found here.

Great (bearish) expectations

Mid-week market update: The bears have exhibited great expectations for risk assets. Ed Clissold of Ned Davis Research observed that the NDR Crowd Sentiment has been at a sub-30 reading, which is historically bullish. However, he pointed out that momentum is negative and hedged with "sentiment is extremes differ cycle to cycle, so it's best to wait for sentiment to begin to reverse".

The full post can be found here.

Beware the Ides of March

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 that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can bsoe found here.

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 email alerts is 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: Neutral*
• 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 those email alerts is shown here.

Subscribers can access the latest signal in real-time here.

No lack of volatility

This stock market certainly does not lack volatility. The VIX Index underwent a recent series of upper Bollinger Band rides (shaded zones) while exhibiting positive RSI and MACD divergences. 

The next known source of volatility starts on March 15, the Ides of March, as the FOMC convenes for its regularly scheduled meeting. 

The full post can be found here.

Not your father's commodity bull

Some chartists have recently become excited over the commodity outlook. Setting aside the headline-driven rise in oil prices, the long-term chart of industrial metals like copper looks bullish. Copper is tracing out a cup-and-handle pattern breakout that targets strong gains in the years ahead. Moreover, the one-and the two-year rate of change, which is designed to look through the effects of the COVID Crash, are elevated but not out of line with past bull phases.

The point and figure chart of copper appears equally impressive. The measured target on a point and figure breakout is an astounding 9.50, which is over a double from current prices.

Is this the start of a new commodity bull? I would argue that this is not your father's commodity bull market.

The full post can be found here.

A double bottom?

Mid-week market update: The S&P 500 put in a potential double bottom when it tested its recent lows while exhibiting a positive RSI divergence. Stock prices rallied on the news of a ceasefire in order to allow civilians to evacuate.

Is this a durable bottom?

The full post can be found here.

Panicked enough a relief rally?

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 that 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. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can bsoe found here.

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 email alerts is 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: Neutral*
• 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 those email alerts is shown here.

Subscribers can access the latest signal in real-time here.

Scared enough?

Are you scared enough? The market is extremely jittery. News last week of a Russian attack that started a fire at a Ukrainian power plant sparked a risk-off episode. Further sober analysis revealed that the incident was under control and there was no radiation leak. Worries about the incident sparking a second Chernobyl disaster are overblown.

Two weeks ago, the AAII weekly sentiment survey showed the bull-bear spread had fallen to -30, but it rebounded last week to -11. Readings of -30 are rare and they have only been lower during the bear markets of 1990 and 2008 (shown in pink). These levels weren't even seen in the wake of the Crash of 1987. In all cases, they signaled short-term bottoms.

The key question for investors is whether current conditions represent a durable market bottom, or just a bear market rally.

The full post can be found here.

An energy and geopolitical recession?

Much has happened in the space of a week. In the wake of Russia's Ukrainian invasion, the West has responded with a series of tough sanctions designed to tank the Russian economy. Energy and other commodity prices have soared and this is shaping up to be another energy and geopolitical crisis. The last three episodes resolved in recessions, which are equity bull market killers. Fourth time lucky?

• The 1973 Arab Oil Embargo
• The 1979 Iranian Revolution
• The 1990 Gulf War
• The 2022 Russia-Ukraine Energy Shock (?)

The backdrop sounds dire. Nouriel Roubini recently warned of stagflation in a Project Syndicate essay. An analysis from Oxford Economics shows that the shocks will hit the Russian economy, but Europe will not be spared. The US is expected to see the least negative impact from the Russia-Ukraine energy shock.

As the Fed embarks on its tightening cycle, it faces a nightmare stagflation scenario of higher energy and commodity prices pressuring inflation and falling economic growth. 

The full post can be found here.

A key test at neckline support

Mid-week market update: Will the S&P 500 hold support or will it break? The index is once again testing the neckline of a potential head and shoulders pattern while exhibiting a minor positive RSI divergence.

Here are the bull and bear cases.

The full post can be found here.