Trading is hard, my head hurts

Mid-week market update: Is the correction over? The S&P 500 was down -3% on a peak-to-trough basis. The 5-day RSI is severely oversold, which has signaled relief rallies in the past (blue circles). On the other hand, the percentage of stocks above their 20 dma is not oversold, which have been more definitive signals of durable bottoms (pink vertical lines). As well the NYSE net highs-lows is showing both a series of higher lows and lower highs.

 

 

Trading is hard. My head hurts.

 

The full post can be found here.

White smoke from the market's conclave?

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 (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Neutral (Last changed from “bullish” on 15-Nov-2024)*
• Trading model: Neutral (Last changed from “bullish” on 17-Jan-2025)*

* 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. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. 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.

The market’s conclave

The recently released film entitled “Conclave” tells the story of how Vatican cardinals sought to elect a new pope after the death of the old one. The film is focused on the conclave, or the meeting of cardinals, as they are locked up in the Vatican and the political maneuvers of the different factions in electing their candidate. The situation is fluid and emerging leadership is highly uncertain.

That’s where the stock market is today. The large-cap growth old leadership is faltering, and different candidates are vying for the top spot. I use RRG charts to tell the story. Relative Rotation Graphs, or RRG charts, are a way of depicting the changes in leadership in different groups, such as sectors, countries or regions, or market factors. The charts are organized into four quadrants. The typical group rotation pattern occurs in a clockwise fashion. Leading groups (top right) deteriorate to weakening groups (bottom right), which then rotates to lagging groups (bottom left), which changes to improving groups (top left), and finally completes the cycle by improving to leading groups (top right) again.

 

An analysis of RRG rotation shows that growth sectors, technology, communication services and consumer discretionary, which is dominated by Magnificent Seven giants Amazon and Tesla, are weakening. While technology and communication services remain in the top right leading quadrant, they are likely to fall into the bottom right weakening quadrant in the near future if they follow the normal clockwise rotation pattern.

The contenders for the new leadership are value stocks, consisting of financials, industrials, energy and materials, and defensive stocks, consisting of healthcare, consumer staples, utilities and real estate. A growth to value rotation would mean a bullish and benign internal rotation for stock prices, while the emergence of defensive sectors as market leaders is a signal of a market pullback.

In the meantime, the market is waiting for the white smoke from the market’s conclave that signals which faction won in the end.

The full post can be found here.

Could a cyclical rebound give the bulls a second wind?

Callum Thomas of Topdown Charts recently argued for the emergence of a global cyclical rebound based on a synchronized central bank easing. Such a scenario of rising inflationary pressures is a signal of a renewal of cyclical rebound in demand.

 
I have some sympathy to that view. I have been bullish on gold for some time, and gold is the classic hedge against unexpected inflation. On the other hand, it runs contrary to my observation that the S&P 500 is undergoing a topping formation (see A Long-Term Sell Signal?).
 

What’s the real story?

The full post can be found here.

Who's left to buy?

Mid-week market update: The results of the latest sentiment surveys argue that this is a time for caution. The BoA Global Fund Manager Survey shows cash at a 15-year low.

 

The institutions are all-in on risk. Who's left to buy?

 

The full post can be found here.

 

Will the real stock market please stand up

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 (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Neutral (Last changed from “bullish” on 15-Nov-2024)*
• Trading model: Neutral (Last changed from “bullish” on 17-Jan-2025)*

* 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. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. 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.

Which index should you believe?

It is said that there is nothing is more bullish than higher prices, but this time may be different. Even as the S&P 500 staged an upside breakout from a wedge formation and it’s on the verge of testing overhead resistance, the equal-weighed S&P 500, which gives higher weight to the smaller stocks in the index, is barely holding at the 50 dma. The mid-cap S&P 400 and the small-cap Russell 2000 are trading below their respective 50 dma. 

Which index should you believe? These manifestations of weak breadth makes me nervous that the latest rally may represent a last hurrah for the bulls.
 

MarketWatch reported that Goldman Sachs strategies Scott Rubner attributed the price strength to a retail buying stampede, but added, “This is the last bullish email that I will send for Q1 2025 as the flow demand dynamics are quickly changing, and we are approaching negative seasonals.”

 
In addition to the negative breadth divergence, I am seeing negative divergences everywhere.
 

The full post can be found here.

What the surge in gold tells us about the stock market

Even though it’s still early in the year, my bullish call on gold has worked out well (see 2025 High Conviction Idea: Gold). Gold has reached an all-time high in all currencies. In particular, it broke out to a new high in the Swiss Franc (CHF), which is regarded as a hard currency, and the Chinese Yuan (CNY), which is reflective of Chinese demand.

 
Beyond the bullish outlook on the yellow metal, here are the asset return implications.

 

The full post can be found here.

Ignore rising tail-risk at your own peril

Mid-week market update:  The latest update of Bloomberg Intelligence Market Pulse Index shows that it's at manic levels.

 

 

The market seems to be ignoring tail-risk, which is an increasingly worrisome development.

 

The full post can be found here.

Still no change: Just a sell signal set-up

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 (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Neutral (Last changed from “bullish” on 15-Nov-2024)*
• Trading model: Neutral (Last changed from “bullish” on 17-Jan-2025)*

* 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. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. 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.

Good news, bad news

I have some good news and bad news for you. 

The bad news is the long-term sell signal from one of my timing models, which is calling for a major top in the S&P 500. This model buys when the MACD of the NYSE Composite (bottom panel) turns positive and sells when the 14-month RSI (top panel) shows a negative divergence, which just happened at the end of January. The good news is the actual market top may take several months after the signal to achieve, and I don’t have actionable tactical sell signals just yet.

 
The tactical news is the short-term technical picture hasn’t changed very much in in the last few weeks. The market is still choppy and range-bound.
 

The full post can be found here.

Bessent's challenges in 2025 and beyond

Treasury Secretary Scott Bessent declared in an interview with Fox Business a surprising target. Bessent and the Trump Administration were mainly focused on lowering the 10-year Treasury yield and Trump is not calling the Fed to lower short-term rates. He also reiterated the Trump Administration’s objective of raising energy output and the extension of the TCJA tax cuts.
 

Here is the short-term report card. Since the Fed announced its jumbo half-point rate cut in September, the 2-year Treasury yield, which is a proxy of the market’s expectations for the terminal Fed Funds rate, has risen, and so has the 10-year yield. The 2s/10s yield curve steepened, indicating stronger growth expectations.
 

Since the election, the 2-year yield is roughly flat and the 10-year yield is up marginally. The bond market has shrugged off anxiety over the possible effects of a trade war, when President Trump announced a 25% tariff on Canada and Mexico, which was later walked back, and a 10% tariff on China. More importantly, the U.S. eliminated a de minimis tariff exception on the import of Chinese goods below $800. An entire industry had grown up to exploit this loophole by sending small individual packages to exploit this rule.

 
So far, so good. The bottom panel of the chart summarizes Scott Bessent’s main challenge in controlling the 10-year yield. The MOVE Index, which is the VIX of the bond market, had fallen since the election and readings are relatively low by historical standards. Bessent’s main task is to calm the bond market and keep anxiety levels low.

 

The full post can be found here.

Waiting for the next market catalyst

Mid-week market update: What should investors make of the market reaction to the trade war drama? The S&P 500 remains range-bound. The bulls will argue that the index is on the verge of an upside breakout from a bull flag (dotted lines), which is a bullish continuation pattern. The bears will argue that momentum is negative, as evidenced by the recycle of the stochastic from overbought to neutral (top panel) and the percentage of S&P 500 above their 20 dma. One key test of market strength is whether the price gap (shown in grey) at just below 5900 is filled in the near future.

 

As for me, I am in wait and see mode for the next market catalyst.

The full post can be found here.

Can the stock market vigilantes save the 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 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 (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Neutral (Last changed from “bullish” on 15-Nov-2024)*
• Trading model: Neutral (Last changed from “bullish” on 17-Jan-2025)*

* 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. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. 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 high volatility regime

I told you there would be volatility. In the past week, investors have seen a fright over how advances in artificial intelligence may affect the AI ecosystem, Federal Reserve and European Central Bank interest rate decisions, earnings reports from Magnificent Seven companies such as Apple, Meta, Microsoft and Tesla, and a raft of Trump policy announcements and executive orders that surprised the market.
Global economic policy uncertainty has spiked. Is it any wonder that market volatility follows suit?

 

The full post can be found here.

A long-term sell signal?

I warned last week about a possible long-term sell signal from my market timing indicator, but I wasn't willing to front run my models as the month hadn’t ended yet. Now it’s happened. A long-term sell signal has been triggered.

As a reminder, this long-term timing indicator buys when the monthly MACD (bottom panel) turns positive and sells when the 14-month RSI of the NYSE Composite (top panel) flashes a negative divergence. Now that the month of January is over. The S&P 500 rose to a marginal closing high on a monthly basis, but the 14-month RSI is exhibiting a lower high, which qualifies as a sell signal.

 
No model is perfect and this sell signal should be regarded as a warning and not actionable trading advice. I interpret this signal as the warning of a possible major market top in Q1 or Q2. From a tactical perspective, I am inclined to monitor other indicators on different investing dimensions for signs of a tactical tipping point that the bears are taking control of the tape.

The full post can be found here.