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.

Waiting for the gaps to fill

Mid-week market update: I know that I expected market volatility, but I didn't expect the immediate source of volatility to be anxiety over DeepSeek. I should have known better when my physiotherapist, who didn't know I worked in finance, started to talk about NVIDIA this week.

You can tell a lot about the character of a market by how it responds to sudden price gaps. The DeepSeek sell-off left a gap in NVDIA's stock price. Now that the dust is starting to settle out over the news, the strength of the AI and semiconductor investment themes will depend on whether the gap gets filled.

 

The full post can be found here.

Tips on navigating the post-inauguration 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 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.

Time for a pause?

January is almost over, and the S&P 500 staged an upside breakout to an all-time high last week, which Jeffrey Hirsch found is consistent with market seasonality. If the seasonal patterns found by Almanac Trader were to continue, stock prices are likely to be flat to down in February.

The full post can be found here.

Two key risks to the bull that no one is talking about

The S&P 500 has been in a steady uptrend for over two years and it just staged an upside breakout to an all-time high. It may seem counterintuitive to be discussing the risks of a major market top, but I am seeing some early warnings that few analysts are paying attention to.

 The full post can be found here.

The Trump Put lives!

Mid-week market update: Trump promised a flurry of executive orders to implement his campaign promises on the first day he took office. Amidst the flurry, the market breathed a sigh of relief as there were no major risk-off catalysts. The market is apolitical and it doesn't care about the reversal of DEI policies, or whether a mountain in Alaska is named Denali or McKinley. Although there were threats of 25% tariffs on Canada and Mexico, and a 10% tariff on China, both to be put in place on February 1st, there were no instant tariffs that would have rattled markets.

Trump showed during his first term that he cared about the stock market. As he begins his second term, the Trump Put seems to be alive again.

As a consequence, the S&P 500 is testing its all-time high at about 6100. Even though readings are overbought, this could be a "good overbought" advance that takes the market to new highs, with upside potential at the dotted resistance line measuring at about 6300 by the end of January. On the other hand, it's disconcerting to see a breadth indicator such as the percentage above the 20 dma (bottom panel) fall on a day the market is testing its all-time high.

Here are the bull and bear cases.

 

The full post can be found here.

What a changing of the guard means for stocks

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: Bullish (Last changed from “neutral” on 19-Dec-2024)*

* 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 bond market reversal

Last week, we highlighted the risk-off tone caused by the bond market tantrum that was under way. As the week progress, softer-than-expected PPI and CPI reports calmed the bond market vigilantes and yields retreated.

 
The reversal occurred just in time for the changing of the guard at the White House.

The full post can be found here.

Trump 2025 market = Reagan 1981?

There are many remarkable similarities between the 1980–1981 stock market pattern and today. Ronald Reagan was elected in November 1980 amidst a wave of partisan enthusiasm and ushered in a revolution, much like Trump. Reagan entered office with a foreign policy win, which was the release of the American hostages held by Iran. Trump enters office ahead of the Israel-Hamas ceasefire that will see the release of hostages.
 
The S&P 500 topped out for the market cycle in late November just after Reagan won the election, though the Dow, which was the more widely quoted market index of the day, made a second high in April 1981. The NYSE Advance-Decline Line topped out in September 1980 and telegraphed the market’s technical deterioration.

 

There are many eerie similarities. Today’s stock market is struggling to regain its highs after a rally after Trump’s electoral win. The Advance-Decline Lines are also weak and technical analysts have expressed concerns about negative breadth divergences. The key difference is the Volcker Fed raised interest rates to punishingly high levels during Reagan’s era, while today’s Fed is pursuing a policy of monetary easing. The 2-year Treasury rate, which is a proxy for Fed Funds expectations, rose steadily and didn’t top out until August 1981.

The full post can be found here.

What an actual bond market catastrophe looks like

Mid-week market update: Is the bond market tantrum over?

Here is the good news. In the wake of tame PPI and CPI reports this week, the 30-year Treasury yield retreated while in a resistance zone (top panel). In addition, there is nothing worse than a failed breakout. The second panel shows the inflation factor trade, consisting of long TIPS and short long-dated zero coupon Treasuries, which staged an upside breakout and reversed itself.

 

The worse of the yield spike fears may have passed. But that was nothing. As a lesson. Here is an actual case of what a potential bond market catastrophe from uncontrolled debt growth looks like.

The full post can be found here.

A focus on financials

The Q4 earnings reporting season kicks off Wednesday with reports from major banks and financial companies. This is a good opportunity to review the outlook for the financial sector.

 

The full post can be found here.

What's rattling 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 (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Neutral (Last changed from “bullish” on 15-Nov-2024)*
• Trading model: Bullish (Last changed from “neutral” on 19-Dec-2024)*

* 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.

Is the honeymoon over?

What’s rattling the stock market? The S&P 500 has been mired in a trading range that began in early November. It sold off in mid-December and flashed an extremely oversold reading on December 20. Subsequent rally attempts have failed and the index is testing its December lows. A definitive breakdown opens the door to a decline to the 200 dma at 5573.

 

Four weeks ago, I published an article entitled “The Public Embraces the Trump Honeymoon”. Under ordinary circumstances, a relief rally should be well underway by now. Is the honeymoon over? How patient should investors be with the bull case?

The full post can be found here.

A preview of the Sino-American Trade War 2.0

China’s leadership was caught off-guard in 2016 because few people expected Trump to win the election. This time, Beijing has had plenty of warning, and it is far better prepared for Trade War 2.0.
 

The key difference is the divergence in the path of economic growth, as signaled by the bond market. Chinese 10-year yields have plunged below 2%, which is a sign of a dramatic slowdown. By contrast, U.S. 10-year Treasury yields have risen, which reflects concerns over a heightened fiscal deficit and rising inflation.

 
In the face of economic weakness, China seems to be preparing for Trade War 2.0 on a different dimension of belligerence. China has embraced von Clausewitz’s famous quote on war: “War is merely the continuation of politics by other means.”

Investors should prepare for greater newsflow volatility and rising geopolitical risk in the months ahead.

The full post can be found here.

A tale of two markets

Mid-week market update: When we last left the stock market on the weekend, the bulls were given a homework assignment (see A failed Santa rally, what now?).

1. The S&P 500 and Russell 2000 had to stage upside breakout through the falling dotted trend line. While the S&P 500 briefly broke out, it retreated yesterday through the trend line. The Russell 2000 never came close to a breakout.
2. The S&P 500 and Russell 2000 had to break out of their sideways range. Not yet.
3. Small caps should outperform, indicating broadening breadth and better participation in an advance. The bad news is the small cap Russell 2000 is lagging. The good news is the equal-weighted S&P 500 is holding up well on a relative basis, and small caps outperformed yesterday during the market decline.
   

Tuesday's equity pullback was attributable to the rise of the bond market vigilantes, who pushed bond yields up and rattled overall risk appetite. On the other hand, the stock market's own technical internals are supportive of an advance.

 

In other words, it's a tale of two markets.

 

The full post can be found here.