Why "Sell America" isn't equity bearish

I have been fairly cautious in my U.S. equity outlook in these pages, but that doesn’t mean I am equity bearish. The accompanying chart shows the progress of different major regional stock markets priced in USD in the last 20 years. With the exception of China, whose stock market doesn’t reflect its economy, stock prices have risen in various degrees over that time period.

 
The top panel of the chart shows that S&P 500 has handily beaten global markets since the GFC and it has retreated back to the rising trend line. Conventional technical analysis calls for investors to buy the dip, with a stop loss just below the trend line. I argue for the Sell America trade of minimizing exposure to USD assets in a broadly diversified portfolio.
 

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.    

 

Sell America = Buy Gold

I am reiterating my bullish view on gold. Gold staged an upside breakout through a cup-and-handle pattern at 2100 in early 2024 and hasn’t looked back since. Moreover, it has staged upside relative breakouts against both the S&P 500 and a 60/40 proxy and it has stayed above the relative breakout levels even after the recent pullback. The technical pattern of multi-year bases and subsequent absolute and relative breakouts is highly reminiscent of the pattern experienced by gold at the start of the 21st Century, which took the yellow metal from its breakout at 500 in 2004 to significant higher prices.
 

I believe this is just the start of a secular bull cycle for gold prices, based on a secular Sell America investment cycle.
 

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.  

An American Emerging Market crisis?

Something unusual happened recently. During risk-off episodes, U.S. economic pain has been cushioned by falling bond yields and an appreciating USD, which translates into lower interest rates and more consumer spending power.
 

The risk-off episode that began in early April, which was just after the “Liberation Day” tariff announcements, saw the opposite. The price of the 10-year Treasury note fell more when denominated in all major currencies except the Chinese yuan. Foreigners were fleeing USD assets and Treasury paper, meaning the pain was amplified.

Had the panic not been stemmed, it was starting to look like a classic emerging market crisis.
 

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.    

Relax, it's just a mid-cycle expansion

The market adopted a risk-off tone when headline Q1 GDP came in lower than expected at 1.6%, compared to an expected 2.5%. More importantly, core PCE rose at an annualized rate of 3.4%, which was hotter than expectations and led to stagflation fears. Upon closer inspection, nominal GDP growth was dragged down by the combination of inventory adjustments and exports. Final sales, which is a better signal of economic growth, came in at 3.1%.
 

Greg Ip at the WSJ offered a constructive interpretation when he pointed out that the U.S. economy still accounts for 26.7% of global GDP, which is the highest level since 2006.

Investors should fade stagflation fears and embrace the “no landing” scenario. These conditions should be good news for risk assets. It’s what a mid-cycle expansion looks like.

The full post can be found here.

Five bullish reversals you may have missed

The S&P 500 exhibited a surprise price reversal on the weekly chart. After violating an uptrend line that stretches back to the COVID Crash bottom which scared the living daylights out of a lot of investors, the index staged an upside reversal while the weekly stochastic recycled from oversold to neutral, which has been a useful buy signal in the past.

 
In addition to this obvious bullish price reversal on the weekly chart, here are five other risk reversal factors that you may have missed.
 

The full post can be found here.

How the USD could sink the S&P 500

Correlation isn’t causation, but the USD Index has shown a close inverse correlation to the S&P 500. The relationship partly ended when the S&P 500 surged on AI mania. However, small-cap stocks, which are less subject to the enthusiasm over the AI revolution, maintained their inverse correlation.

 
The USD Index is approaching a key resistance level. Assuming the inverse correlation were to continue, what are the bear and bear cases for the USD, and consequently U.S. equities?

The full post can be found here.

What USD weakness may mean for asset returns

An unusual anomaly arose during the latest banking crisis when a long-standing historical relationship broke apart. When bank stocks skidded in response to the problems that first appeared at Silicon Valley Bank, the 2-year Treasury yield fell dramatically, indicating a rush for the safety of Treasury assets. What was unusual this time was the weakness in the USD. The greenback has rallied during past financial scares and crises as investors piled into the safety of the USD and Treasury paper. This time, Treasuries did reflect a flight to safety, but not the USD. As the USD has been inversely correlated to the S&P 500, and the dollar can’t advance even with the macro tailwind of a banking crisis, what does this mean for asset returns?

 

The full post can be found here.

How to navigate the mid-cycle expansion

It's been over a year since the stock market bottom at the height of the Pandemic Panic. The market consensus has evolved from an early cycle recovery to a mid-cycle expansion, as evidenced by the BoA Global Fund Manager Survey.

What that means for investors? Here are the key questions we focus on:

• What's the outlook for the S&P 500?
• What will be the market leadership?
• What's the outlook for commodities, Treasury yields, and the USD?

The full post can be found here.

What a bond market rally could mean for your investments

The trader Alex Barrow recently observed that the sentiment backdrop is setting up for a bond market rally.

 

While Barron's is not as reliable as The Economist as a contrarian magazine cover indicator, the stars appear to be lining up for a counter-trend rally in bond prices. Here is what a potential bond market means for the other major asset classes.

The full post can be found here.

No reasons to be bearish?

The nature of the market advance has been extraordinary and relentless. From a long-term perspective, the monthly MACD model flashed a buy signal last August for the broadly-based Wilshire 5000 and there are no signs of technical deterioration. This is a bull market, but sentiment has become sufficiently frothy that a reset is overdue.

The latest BoA Global Fund Manager Survey concluded that "the only reason to be bearish...is there is no reason to be bearish". As the economic outlook improved and the vaccine rollouts are on track to control the pandemic, the market's mood has shifted from despondency to mania. An immense amount of speculative froth has appeared. The market has been overrun by small uninformed YOLO (You Only Live Once) investors trading penny stocks and call options. 

In addition, the market has been presented with the spectacle of cash-starved auto maker Tesla spending its precious cash to buy Bitcoin. Not only that, software maker MicroStrategy $900 million in convertible notes at a 0% yield with the expressed intention of purchasing Bitcoin, after tapping the markets in December with a similar convertible.

However, stock prices don't just fall and sentiment reset without a fundamental narrative that investors can focus on. Here are the key risks to the bullish consensus.

The full post can be found here.

2020 is over, what's the next pain trade?

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 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 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: Buy equities*
• Trend Model signal: Bullish*
• Trading model: Bullish*

* 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 those email alerts is shown here.

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


The next pain trade

Now that 2020 is over, what's the next pain trade? I have a few candidates in mind. The latest BoA Global Fund Manager Survey taken in early December described the top two most crowded trade as long technology stocks, and short USD.

Another source of vulnerability is the expectation of a steepening yield curve. If history is any guide, heightened expectations of a steepening yield curve have resolved with market upsets of differing magnitude.

As a reminder, this survey was taken in December. After the Georgia special Senate elections gave the Democrats the trifecta of the control of the White House, Senate, and House of Representatives, the 10-year Treasury yield surged to over 1%, and the yield curve steepened even further.

All of these vulnerabilities are connected from a cross-asset perspective - the steepening yield curve, long technology stocks, and short USD. 

The full post can be found here.

Broken Trends: How the world changed

The world is changing, but it changed even before Trump's COVID-19 news.

In the past few weeks, a couple of key macro trends have reversed themselves. The US Dollar, which large speculators had accumulated a crowded short position, stopped falling and began to turn up. In addition, inflation expectations, as measured by the 5x5 year forward, stopped rising and pulled back.

These developments have important implications for investors.

The full post can be found here.

The tone is still risk-off

Mid-week market update: I have some good news and bad news. The good news is the performance of the NASDAQ 100,  the market leadership, has stabilized. The relative performance of the NASDAQ 100 against the S&P 500 successfully tested a rising relative trend line, and the relative uptrend is still intact.

The bad news is the NDX rally failed at the 50 day moving average, and the rest of the market is maintaining a risk-off tone.

The full post can be found here.

For traders: 3 bullish, and 1 cautionary sign

The following note is addressed to short-term traders with time horizons of a week or less. I would like to highlight some three bullish, and one cautionary data points.

First, the latest update of the Citi Panic/Euphoria Model is solidly in panic territory. This is contrarian bullish, but recognize that the bullish call is based on an intermediate term time horizon.

The full post can be found here.

The guerrilla war against the PBOC

The enemy advances, we retreat
In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like "whatever it takes" moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings, and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China's stock markets stabilized and recovered, and so too the markets of China's Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC by using Mao Zedong's principles of war. The first principle is "When the enemy advances, we retreat."

Indeed, when the PBOC flooded the market with liquidity, stock prices went up. But that's not the entire story.

The full post can be found here.

Scary Halloween story: How a weak USD could hand China a major victory

I have written before how a strong USD can be a negative for global financial stability. There are  many EM borrowers who have borrowed in the offshore USD market, and a rising USD puts a strain on their finances.

In addition, FactSet reported that companies with foreign domestic exposure have exhibited worse sales growth than companies with domestic exposure.

The USD Index staged an upside breakout out of a multi-year cup and saucer pattern with bullish implications, which was bearish for global risk appetite. More recently, it fell below the breakout line, which should be bullish for global assets. Indeed, the bottom panel shows that the relative performance of EM stocks is making a broad based bottom, just as the USD weakened.

Here is the scary Halloween story to be told around the campfire. A falling USD has the potential to hand China a major geopolitical victory without firing a single shot. In the ancient text, The Art of War, Sun Tzu wrote that a general could win by arraying his forces to exploit his enemy`s weaknesses. That way, he can achieve victory without bloodshed if it becomes evident that the enemy will collapse before any fighting begins.

Here is a little known but glaring weakness that Beijing could exploit.

The full post can be found here.




Announcing our Thanksgiving $2 Sale!
We are proud of our Trend Asset Allocation Model, which showed a steady record of improving performance and reducing risk against a passive 60/40 benchmark in a simulation using actual signals.

We are announcing our Thanksgiving Sale $2 sale, where you can get 14 months for the price of a 12 month annual subscription, plus $2 off! Just use the coupon code Thanksgiving2019 when you sign up for an annual subscription (two month adjustment will be made within 24 hours after checkout). This offer expires at midnight, Pacific Time, on US Thanksgiving weekend (December 1, 2019). Subscribe here.

Existing subscribers who would like to extend their subscription for 14 months at the price of 12 at their current subscription price, please drop me a note by email.

How to trade foreign cross-currents

Mid-week market update: Global markets have taken a decided risk-on tone today on the news that Hong Kong leader Carrie Lam has withdrawn the controversial extradition bill. As well, the revolt in the British parliament has lessened the chances of a chaotic no-deal Brexit on October 31. On the other hand, the market was hit by some somber news earlier in the week, when the PMI reports revealed a slowing global economy.

In the meantime, US equity prices remain range-bound.

Should we interpret these developments as net bullish or bearish? The answer is...

The full post can be found here.

How worried should you be about a recession?

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 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: Buy equities*
• Trend Model signal: Bearish*
• Trading model: Bullish*

* 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.



Recession fears are rising
The whiff of recession is in the air, and anxiety levels are rising. Analysis from Google Trends reveals that searches for the terms "recession" and "yield curve" have spiked.

Tariff Man is getting worried. At the nadir of last week's stock market decline, Trump tweeted, "The Fake News Media is doing everything they can to crash the economy because they think that will be bad for me and my re-election".

The New York Times reported Trump is convinced that there is a conspiracy to distort economic data and exaggerate the prospect of a recession,

President Trump, confronting perhaps the most ominous economic signs of his time in office, has unleashed what is by now a familiar response: lashing out at what he believes is a conspiracy of forces arrayed against him.

He has insisted that his own handpicked Federal Reserve chair, Jerome H. Powell, is intentionally acting against him. He has said other countries, including allies, are working to hurt American economic interests. And he has accused the news media of trying to create a recession...

Mr. Trump has repeated the claims in private discussions with aides and allies, insisting that his critics are trying to take away what he sees as his calling card for re-election. Mr. Trump has been agitated in discussions of the economy, and by the news media’s reporting of warnings of a possible recession. He has said forces that do not want him to win have been overstating the damage his trade war has caused, according to people who have spoken with him. And several aides agree with him that the news media is overplaying the economic fears, adding to his feeling of being justified, people close to the president said.

How serious are the recession risks? What should and shouldn't equity investors be worried about? We examine some details.

The full post can be found here.

A White Swan market

Mid-week market update: I am writing my mid-week update a day early because of the extraordinary volatility in the stock market.

My wife and I took a few days to go on a Danube river cruise. As we arrived in Vienna, we spied a white swan swimming beside our ship. The white swan seems to be an  apt metaphor for today's market, which is a market of known risks.

The full post can be found here.

USDCNY at 7? It's not you, it's me

The market has adopted a risk-off tone today because the Chinese yuan rose above the rate of 7 to 1 to the USD. The move was positioned as retaliation for Trump`s new tariffs. In addition, China has halted all purchase of American agricultural goods.

What did you expect? The controlled depreciation of CNY is not unexpected. The chart below of the Chinese yuan ETF shows that it had been unusually strong compared to the trade weighted dollar. Viewed in this context, the PBOC devaluation in 2015 was fully justified. Today's fall is reflective a decision by the PBOC to stop leaning against the market winds.

To put it differently, the broader problem isn't CNY weakness, but USD strength.

The full post can be found here.