Buy the breadth thrust and FOMO stampede?

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 which 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. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

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

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


Breadth thrusts are bullish
Last week, technical analyst Walter Deemer pointed out that the market had flashed a "breakaway momentum" buy signal. He did qualify the condition, "Supposed to get it near the beginning of a powerful move, not after a 42% advance (altho did have late signals Jul 12 2016 and Nov 20 1950). Definitely not its finest moment..."

As well, Deemer reported on Friday that the market achieved both a Whaley Breadth Thrust and a Whaley Volume Thrust.

Could this be the start of a new bull leg? On one hand, the market's animal spirits are stirring, and breadth thrusts like Deemer's breakaway momentum signal have historically been bullish. There are usually signals of a full-fledged Fear of Missing Out (FOMO) stampede, especially in light of the surprisingly strong May Jobs Report (see May Jobs Report: Back from furlough). If you only believe technical analysis is all that matters, then you should be bullish.

On the other hand, the market is trading at a stratospheric forward P/E of 22.4, and at a 2021 P/E of 19.5. To buy now means adopting the late 1990's go-go mentality that earnings don't matter, and all that matters is price momentum.

Careers were made and severely damaged during the dot-com era. Should traders throw caution to the wind?

The full post can be found here.