How far can this rally run?

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 prices. 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 be 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: Sell 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 bullish turnaround

The S&P 500 turned up last week after a test of the May lows while exhibiting a 5-day RSI divergence. The rally was convincing as the index rallied through a falling trend line and the daily MACD indicator turned positive.

One of the most anticipated relief rallies is here. How far can the stock market run?

The full post can be found here.

Green shoots = Time to bottom fish?

Now that the S&P 500 has started to turn up after bouncing off a head & shoulders downside target. Green shoots are starting to appear for the bulls, is it time for investors to buy stocks and bottom fish?

The full post can be found here.

Have the bulls seized control of the tape?

Mid-week market update: After weeks of documenting how oversold and washed out the stock market is, the S&P 500 staged a marginal upside breakout through a falling channel while exhibiting a series of positive 5-day RSI divergences. Equally constructive is the behavior of net new highs, which turned positive today.

Have the bulls seized control of the tape? Or will NVDA's poor guidance drag down the market tomorrow?

The full post can be found here.

Washed out enough?

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 prices. 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 be 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: Sell 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.

Different fears for different folks

Is the market sufficiently fearful yet? There is no single sentiment indicator. The market consists of different constituents and different types of investors can be bullish or bearish at any single point in time. While conventional surveys such as Investors Intelligence shows continued levels of extreme bearishness, other indicators can tell different stories.

The full post can be found here.

From FOMO to GIDOT (Glad I Don't Own That)

Legendary investor John Templeton once said:

Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

Where are we in the market cycle? From a long-term perspective, the S&P 500 is wildly oversold on the monthly MACD histogram, but the 14-month RSI has retreated to a neutral reading. Market psychology has shifted from FOMO (Fear of Missing Out) to GIDOT (Glad I Don't Own That).

The full post can be found here.

Is the bounce over?

Mid-week market update: One of the concerns I had after last Friday's market turnaround was that a bounce had become the consensus view. Virtually every technical analyst was calling for a bear market rally, followed by further weakness. It sounded too easy. Either the bounce was going to fail, or the market was going to roar to new highs.

The market followed through Friday's strength with a 2% gain in the S&P 500 yesterday (Tuesday), but managed to give it all back and more today. The hourly S&P 500 chart exhibited a possible upside breakout through an inverse head and shoulders pattern, which was thwarted by today's weakness. While there is nothing worse than a failed breakout, it could be argued that the market is in the process of forming the last shoulder of the formation. 

In light of today's market action, is the bounce over?

The full post can be found here.

The crypto contagion risk to 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 that applies trend following principles based on the inputs of global stock and commodity prices. 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 be 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 crypto bank run

I had voiced my reservations about the cryptocurrency ecosystem in the past (see The brewing Lehman Crisis in Crypto-Land) and the risks manifested themselves in the last week. To briefly recap the problem, cryptocurrencies are mainly traded in the offshore market. A crypto trader can exchange USD for crypto, but banks do not allow direct access to crypto exchanges, with some exceptions. The crypto trader can exchange his USD for a stablecoin, which is a token that is theoretically backed 1 for 1 to the USD. He then exchanges his stablecoin to buy cryptocurrencies and back when he sells. When he wants USD in his account, he instructs the stablecoin provider to convert his stablecoin into USD, which is deposited to his onshore USD account.

The important piece of the crypto ecosystem plumbing is confidence in the stablecoin system. Stablecoins are supposed to be like money market funds, they shouldn't be trading below par. Last week, the TerraUSD stablecoin, also known as UST, broke its USD peg and sparked a crisis of confidence. Within the space of a few days, the value of LUNA had evaporated to zero. Crypto traders began a virtual bank run on stablecoins. Tether, the largest stablecoin, broke its peg last week, While prices have partly recovered and stabilized, Tether is still trading slightly below 1.

The crypto bank run set off a stampede of selling in cryptocurrencies and other speculative risk assets. 

The big question for investors is whether the crypto meltdown will have a long-lasting effect on global risk appetite and risk aversion leak into the equity market. Was the Crypto meltdown last week the new LTCM moment for asset markets?

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.

The commodity canary in the coalmine is falling over

One of the main elements of my Trend Asset Allocation Model is commodity prices as a real-time indicator of global growth. As well, John Authers recently wrote, "The commodity market is a real-time attempt to assimilate geopolitical developments, growth fears, and shocks to supply and demand, so it’s an important place to look for the next few weeks." So far, commodities have been elevated even as the global economy showed signs of slowing. The divergence is attributable to supply shocks.

We all know the recent story of supply shocks. The COVID-19 pandemic disrupted global supply chains and caused both a supply shock. As the virus first emerged in China, Beijing responded by shutting down the economy and its industrial capacity came to a virtual halt. Just as the world began to recover from the COVID Crash, the Russia-Ukraine war sparked another supply shock, this time in energy and agricultural products. 

Despite the supply pressures, commodity prices have finally started to fall. In particular, the cyclically sensitive industrial metals have rolled over.

Here is what it all means.

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.

A market bottom checklist update

Mid-week market update: For several weeks, sentiment surveys such as AAII and Investors Intelligence have signaled extreme levels of bearishness seen at past market bottoms. However, some observers have played down the sentiment surveys because indications of positioning are inconsistent with extreme fear. As an example, funds are still pouring into the Cathie Wood's Ark Investment ETFs even as the speculative growth vehicles tank. That's not the sort of behavior seen at washout bottoms. On the other hand, I have received a flood of emails and other messages of concern about the stock market indicating growing fear and panic.

To resolve the dilemma, my publication "How to spot a market bottom" published on March 19, 2022 offered a useful checklist that I'll go through.

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.

Making sense of the H&S breakdown

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 prices. 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 be 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.

Head and shoulders intact

The head and shoulders breakdown of the S&P 500 remains intact. The index surged to test neckline resistance last week when Powell took a three-quarter rate hike off the table, but the bears regained the upper hand the next day.

How much should you trust the head and shoulders breakdown and its downside measured objective of about 3830? The 5-week RSI is already oversold. How much more downside is left?

Here are the bull and bear cases.

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.

Profit opportunities from the coming global recession

Welcome to the coming global recession. We can debate all day about the global growth outlook, but consider this: Global Manufacturing PMI has fallen to 48.5, indicating contraction. It's the first negative reading since the COVID Crash of 2020.

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.

FOMC reaction: I told you so

Mid-week market update: Happy Price Stability Day to you!

Ahead of the FOMC meeting, I had been pounding the table that market expectations were unrealistically hawkish. The market was discounting strong rate hikes well beyond the Fed's stated median neutral rate of 2.4%, according to the March Summary of Economic Projections.

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.

A sentiment preview of FOMC week

Since the publication of my weekend trading update (see Will the Fed rally or tank markets?), a number of additional sentiment readings have come to light that may be relevant to traders and investors. The historic almost off-the-chart levels of bearishness of the AAII weekly sentiment survey has been known for several days, but there's more.

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.

Will the Fed rally or tank markets next week?

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: 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 those email alerts is shown here.

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

Another test of the 2022 lows

Here we go again. The S&P 500 tested its 2022 lows on Friday while exhibiting a positive 5-day RSI divergence. Selected sentiment readings are at off-the-charts levels. Both the bond and stock markets are poised for a relief rally, and the FOMC meeting Wednesday could be the catalyst.

The full post can be found here.

Sale in May

We would also like to announce our "Sale in May" event. Get 50% off a monthly subscription for the first month. Click here to subscribe.