Is this the next FANG-style market darling?

I don't comment about individual stocks very often, but I came upon this chart. It has been steadily rising for the last few years and it has been quietly beating its sector peers. Could this be the next Amazon or Apple?

The full post can be found here.

Decision time for bulls and bears

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: Bullish*
• 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. I am also on Twitter at @humblestudent and on Mastodon at @humblestudent@toot.community. 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.

Testing key support

As the S&P 500 tests critical support level, as defined by the falling trend line, it's technical decision time for both bulls and bears. While a rally off support levels is the more likely outcome, a break of support opens the door to considerable downside risk to the 200 wma at about 3715. On the other hand, a relief rally is likely to be capped at resistance at about 4180.

The full post can be found here.

Fight the tape, or the Fed?

In addition to the hot January PCE print, the other surprise of last week was the upbeat flash PMI from S&P Global Market Intelligence (formerly IHS Markit) showing upside surprises from the G4 industrialized countries. Increasingly, the market narrative is shifting from a growth slowdown to no recession and continued growth. The markets are behaving the same way, as they turn to discounting a growth revival, led by a successful China reopening.

At the same time, last week's release of the February FOMC minutes warned, "Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time."

What should you do? Fight the tape, or fight the Fed?

The full post can be found here.

Oversold, but wait for the re-test

Mid-week market update: The Zweig Breadth Thrust buy signal is a rare price momentum signal that's been triggered only six times since Marty Zweig wrote the book that outlined his signal. The stock market has risen every time 12 months after the buy signals. It requires the Zweig Breath Thrust Indicator (ZBT) to rise from an oversold to an overbought condition within 10 trading days, which is indeed an rare occurrence.

While the ZBT buy signal is extremely rare, the ZBT Indicator can serve as a useful short-term trading indicator when it is oversold. In the past, this has served to indicate favorable risk-reward long entry points, which seems to be the situation today.

The full post can be found here.

Could EM weakness unravel the equity bull case?

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: Bullish*
• 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. I am also on Twitter at @humblestudent and on Mastodon at @humblestudent@toot.community. 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.

Three golden crosses

Here's why I am bullish on the outlook for equities. A review of the performance of the major regions shows that all regions have achieved golden crosses, which occurs when the 50 dma rises above the 200 dma to indicate an uptrend. MSCI EAFE is in the lead, followed by the S&P 500, while MSCI Emerging Markets is lagging and it's violated its 50 dma.

While strong global breadth is constructive for the equity outlook, the nagging question is, "Could EM weakness unravel the bullish narrative?"

The full post can be found here.

Is there an inflation threat in your future?

On Valentine's Day, the European Central Bank tweeted a poem to underscore its commitment to fighting inflation.

The ECB tweet is also indicative of the tight monetary policy undertaken by most major central banks. Only two central banks, the BoJ and the PBoC, are meaningful suppliers of global liquidity. The rest are raising interest rates and engaged in quantitative tightening. While the Fed may be on the verge of a pause, last week's hot PPI report and slightly stronger than expected CPI print has raised doubts about a dovish pivot.

Inflation is becoming a threat again.

The full post can be found here.

Sound the tactical all-clear

Mid-week market update: Last week, the usually reliable S&P 500 Intermediate Term Breadth Momentum Oscillator (ITBM) flashed a tactical sell signal when its 14-day RSI recycled from overbought to neutral.

It's time to sound the tactical all-clear in the aftermath of the sell signal.

The full post can be found here.

Cautious signs of a bullish revival

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: Bullish*
• 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. I am also on Twitter at @humblestudent and on Mastodon at @humblestudent@toot.community. 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.

Can't have a bull market without the bulls

Ever since I turned bullish on equities (see What the bull case looks like), I am seeing signs of a revival in sentiment. Contrarian sentiment analysis is useful, but if you believe this is the start of a new bull, sentiment needs to steadily improve. You can't have a bull market without a steady revival of bullish sentiment. Indeed, the 4-week moving average of AAII bulls-bears and the NAAIM Exposure Index, which measure the sentiment of RIAs managing individual client funds, have bottomed turned up.

 

The full post can be found here.

Why you should fade the NASDAQ surge

The recent market rally has been led by a resurgence in large-cap NASDAQ stocks. This leadership has become overly extended, as evidenced by the rising divergence between their relative performance and the 10-year Treasury yield. A detailed factor and sector performance analysis reveals an underlying trend in favor of cyclical exposure.

 

The full post can be found here.

Making sense of the S&P 500 golden cross

Mid-week market update: In case you missed it, the S&P 500 experienced a "golden cross" this week, when the 50 dma rose above the 200 dma. This is generally regarded as a bullish development among the technical analysis crowd as an indication that the price trend has turned upward.

How should traders and investors interpret the golden cross signal?

The full post can be found here.

Was the January Jobs Report a data blip?

I've been trying to make sense of the blowout January Jobs Report. BLS reported a Nonfarm Payroll gain of 517,000, which was an off-the-charts surprise compared to market expectations of 185,000. Whenever large surprises occur, it makes me think that the report represents a data blip.

For some perspective, the 517,000 gain represents an enormous surge in the seasonally adjusted NFP report (blue). The non-seasonally adjusted figure (red) shows that January usually sees large layoffs, and job losses were lower than normal.

Here are the bull and bear cases for employment and the labor market.

The full post can be found here.

Has the market reached escape velocity?

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: Bullish*
• 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. I am also on Twitter at @humblestudent and on Mastodon at @humblestudent@toot.community. 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 gods smile on the bulls

Last week was a very data-heavy week, filled with macro events and earnings reports from several megacap growth stocks. I was expecting volatility as anything could have happened. Instead, the market gods smiled on the bulls as most of the events resolved in bullish fashions. Inflation (Employment Cost Index) was tame. Employment (JOLTS, ADP, and NFP) were either weak or exhibited weak internals. The Fed raised rates by an expected quarter-point. Powell tried, but failed to put on a hawkish face. The positive market reaction to META overwhelmed to negative reactions to AAPL, AMZN, and GOOGL earnings results.

As a consequence, all of the market averages staged convincing upside breakouts through resistance.

Is this a sign of a market liftoff that signals a new bull?

The full post can be found here.

A risk of transitory disinflation

The main event last week for US investors was the FOMC decision. As expected, the Fed raised rates by a quarter-point and underlined that "ongoing increases in the target range will be appropriate". Powell went on to clarify that "ongoing increases" translated to a "couple" of rate hikes, which would put the terminal rate at 5.00% to 5.25%, a level that was just above market expectations. He went on to signal that the Fed does not expect to cut rates this year. Moreover, he stressed, "We will stay the course until the job is done".

Those statements appeared hawkish, until he allowed, "We can now say for the first time that the disinflationary process has started". In addition, he characterized financial conditions as tight when it was obvious that markets had been taking on a risk-on tone since October. 

As a consequence, the Fed's hawkish warnings fell on deaf ears. Asset prices went into a risk-on mode in response to Powell's statements during the press conference. The market consensus terminal rate stayed at just below 5% and expectations of rate cuts at the end of 2023 changed from one to two. It took a strong surprise from the January Jobs Report to push the terminal rate above 5%, though easing expectations was pushed forward into mid-year.

To be sure, inflationary pressures are softening in a constructive way, but the risk of transitory disinflation is rising.

The full post can be found here.

Be wary of the initial reaction on FOMC days

Mid-week market update: The stock market reacted with a risk-on tone to the FOMC decision. The S&P 500 has staged an upside breakout through the 4100 level. While I am cautiously intermediate-term bullish, be warned that the initial reaction to FOMC decisions are often reversed the following day.

Keep in mind that this is a weekly chart. The week isn't over.

The full post can be found here.