Is the relief rally over?

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 “neutral” on 28-Jul-2023)*
• Trading model: Bullish (Last changed from “neutral” on 16-Aug-2023)*

* 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.

 

 

Sell the news?

Last week, I suggested that the stock market was ripe for a relief rally in the context of a deeper correction. The rally duly arrived. One of the main events was the earnings report from Nvidia, which blew the doors off Street expectations both on sales and earnings. The market reacted with Nvidia failing to hold its overnight gains. More importantly, the Semiconductor Index weakened below a key relative support level.

 

Is this a case of buy the rumour, sell the news? What does that mean about the short-term direction for stock prices. Is the relief rally over and a deeper correction about to begin?

The full post can be found here.

The risks to the resilient bull

Ever since the NYSE Composite monthly MACD flashed a long-term buy signal, I have been monitoring the risks to the bull. Past positive MACD crossovers have signaled long-term resilient equity bull markets and such signals have marked durable advances, which are subject to the normal equity risk of minor corrections without significant bearish episodes.

 

Part of investing is to be continually skeptical and avoid confirmation bias, which is why I have highlighted possible risks that could derail this bull in the past few weeks. I review these risks here, in addition to others that concern me:

• Could A Credit Event Derail the Equity Bull?
• Trust (the Bull), But Verify (There’s No Recession)
• The TARA Risk from Japan
• What Are the Contagion Risks of a China Slowdown?

The full post can be found here.

How far can the relief rally run?

Mid-week market update: I have been calling for a relief rally, followed by a deeper correction (see Why I am both bullish and bearish). The relief rally seems to have arrived as the S&P 500 breached the upper trend line of a falling channel while exhibiting improvements in new 52-week high breadth.

How far can the rally run?

The full post can be found here.

Why I am both bullish and bearish

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 “neutral” on 28-Jul-2023)*
• Trading model: Neutral (Last changed from “bearish” on 03-Aug-2023)*

* 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.

 

 

Bullish and bearish on different time horizons

As the S&P 500 violated its 50 dma but reached an oversold condition on the percentage of stocks above their 20 dma, I am bullish and bearish on stocks, depending on the time frame.

• Due for a Relief Rally: The market is due for a bounce (1–2-week horizon).
• A Deeper Correction: There may be unfinished business to the downside once the relief rally is complete (3–6-week horizon).
• Long-term Bullish: The technical structure of market action points to a longer-term bull trend.

 
The full post can be found here.

What are the contagion effects of a China slowdown?

Periodically, the market is rattled by a “China is slowing” narrative. As the accuracy of official Chinese statistics can be doubtful, the real-time market reaction indicates nervousness, but no panic. The performance of the equity markets of China and her major trading partners relative to MSCI All-Country World Index (ACWI) shows that their trends are all flat to down.

 
How concerned should investors be about a China slowdown and its contagion effects?

The full post can be found here.

Pooised for a rebound

Mid-wek market update: The S&P 500 became extremely stretched in mid-June when its 14-week RSI exceeded the 90 level. The last two times this happened, the market eventually pulled back and the initial decline was arrested with RSI reached a neutral reading of 50. That 50 target was reached this week, which I interpret as the market is setting up for a relief rally.

The full post can be found here.

Will NASDAQ weakness unravel 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: Bullish (Last changed from “neutral” on 28-Jul-2023)*
• Trading model: Neutral (Last changed from “bearish” on 03-Aug-2023)*

* 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.

 

 

A weak NASDAQ

Call the Market Police! The NASDAQ Composite has fallen for two consecutive weeks and violated a rising trend line. It seems that the AI-fueled party is over. 

 
The key question is whether this pullback unravels the equity bull case.
 

The full post can be found here.

The TARA risk from Japan

 Strategists coined the term TINA (There Is No Alternative) for describing equities as an asset class during the low-interest rate era. Now that rates have risen, there is a new acronym, TARA (There Are Reasonable Alternatives). Today, U.S. faces a TARA challenge from elevated Treasury yields.

The forward P/E ratio of the S&P 500 had been tracking the inverse of the 30-year Treasury yield in the last 10 years until early 2023 when they diverged. The forward P/E and Treasury yields rose together, which made bonds more attractive. That’s the TARA valuation threat to U.S. equities.
 

 

On top of that, there’s another emerging TARA valuation threat – and it’s coming from Japan.
 

The full post can be found here.

Buy or sell this resilient stock market?

Mid-week market update: I have been calling for a period of consolidation and pullback and that phase of the market seems to have arrived. As the S&P 500 weakened and the VIX Index spiked above its upper Bollinger Band, indicating a short-term oversold condition, this stock market has been remarkably resilient. The 5-day RSI traced out a positive divergence, and the NYSE net new highs remained positive during this episode.
 

Does this mean the correction is over?

 

The full post can be found here.

How to spot the correction bottom

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 “neutral” on 28-Jul-2023)*
• Trading model: Neutral (Last changed from “bearish” on 03-Aug-2023)*

* 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.

 

 

A correction in an uptrend

I have been warning for several weeks that U.S. equities appeared extended even as stock prices advanced. Even though the intermediate trend was bullish, the market could pull back at any time.

It seems to have finally happened. The S&P 500 stalled and turned down on the news that Fitch had downgraded U.S. government debt. The ratings downgrade shouldn’t have been a risk-off trigger. U.S. Treasury paper is regarded as the default-free and risk-free asset. No one buys Treasuries based on a credit rating. In fact, the market reaction to the ratings downgrade was a steepening of the yield curve. Short Treasury yields fell while longer-term yields rose. If the market was truly rattled by the change in credit rating, yields should have risen across the board.

Instead, I believe the stock market had risen too far and too fast. The Fitch downgrade was just an excuse to sell and the pullback was overdue. You can tell a lot about the psychology of the market by the way it responds to news. FactSet reported that, with 84% of the S&P 500 having reported earnings, the market isn’t rewarding the shares of companies that beat EPS expectations.
 

 

Where’s the correction bottom?

The full post can be found here.

Trust (the bull), but verify (there's no recession)

 It’s finally happened. The monthly MACD of the NYSE Composite turned positive at the end of July. This has been a reliable long-term buy signal in the past. The sell rule in this model is a negative 14-month divergences.

 

In the words of Ronald Reagan when he was negotiating an arms control treaty with the Soviets, “Trust, but verify.” I am inclined to trust the bull, but it’s equally important to verify that a recession won’t sideswipe any potential equity advance.
 

The full post can be found here.

A test of bullish conviction

Mid-week market update: I wrote on the weekend that my monthly MACD model was “On the verge of a long-term buy signal”. The good news is the stock market rose enough on Monday, which was the last day of July, to eke out a buy signal condition.
 

 

The bad news is the market is very extended and vulnerable to market weakness. And if this is the start of a pullback, it could be a test of market psychology and bullish conviction.

 

The full post can be found here.