A Market Divided Against Itself

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: Bullish (Last changed from “bearish” on 27-Jun-2025)*
• Trading model: Neutral (Last changed from “bullish” on 31-Jul-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 House Divided

The markets adopted a risk-on tone after the FOMC decision to cut rates a quarter-point. The S&P 500, the NASDAQ Composite, and even the small-cap Russell 2000, reached all-time highs. It is said that there is nothing more bullish than a new high.

On the other hand, Abraham Lincoln also famously said, “A house divided against itself cannot stand”. While I find new highs constructive, especially if they are accompanied by evidence of strong breadth and momentum, that’s not the case in the current circumstances. In fact, I am seeing evidence of breadth divergences. In other words, it’s a market divided against itself, can it stand?

Consider the Russell 2000 ETF (IWM), which staged an upside breakout from an inverse head and shoulders pattern in June with a measured objective of about 248. The price of IWM is nearly at its technical objective, but the small-cap Advance-Decline Line has gone nowhere. Should the bulls be concerned?

 

The full post can be found here.

 

Special announcement: Humble Student of the Markets will cease publication on March 31, 2026. See this announcement for more details and updates.