A global and cross-asset market review

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: Bearish

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.

An uneasy feeling

I wrote a week ago that I had an uneasy feeling about the stock market’s intermediate term outlook. This was owing to a combination of global market weakness, and cross-asset warning signals. Last week, US equities continued to grind upwards. Let’s review how those signals evolved.

Starting with the US, the SPX broke up through a rising trend line to a new recovery high. Internals were mixed. While Advance-Decline Lines staged upside breakouts to all-time highs, the ratio of high beta to low volatility stocks, which is a risk appetite indicator was range-bound and did not confirm the market’s strength. Neither the the NYSE Advance-Decline Volume (bottom panel).


The NASDAQ 100, which had been the market leaders, broke out through resistance to a new all-time high, and the breakout held despite a pullback late in the week.


It is unclear how much good news and bad news is in the market. President Trump’s announcement on Saturday that he would sign an Executive Order and several Memorandums to extend supplemental unemployment insurance payments at the rate of $400 per week, down from $600 per week, suspend the collection of payroll taxes, defer student loan payments, and extend the federal moratorium on evictions. CFD futures, which is admittedly thin and prices are only indicative, did not react to the news.

Overseas weakness

The action in overseas markets was not as bullish. European markets (all indices are measured in local currency) pulled back and were unable to recover above their 50 day moving averages (dma). All were below their 200 dma.


Turning to Asia, Japan’s Nikkei Index was also unable to rally much, and ended the week below its 50 and 200 dma.


The technical condition of the Chinese market and the markets of China’s major Asian trading partners were mixed. Shanghai was never able to recover and break out above resistance after an initial surge and pullback. The Hong Kong market weakened below its 50 dma. Taiwan and South Korea were strong, but that’s mainly attributable to the leadership of semiconductor stocks. Singapore and Australia remain regional laggards.


A commodity price checkup

What about commodity prices? They are important barometers of the global cycle, and Chinese demand as China has been an voracious consumer of commodities. The CRB Index has been rising steadily, but it remains caught between its 50 and 200 dma despite the recent stellar performance of precious metals.


Some words of caution are in order for commodity and gold prices. First, the USD has shown an inverse relationship to both commodity and gold prices, and Macro Charts pointed out that the USD Index (DXY) DSI is wildly oversold. He went on to say, “Since 2011 this was a near-perfect bottoming signal.”


I previously identified a USD reversal as one of my equity bearish tripwires. Not only is a rising dollar bearish for commodity prices, it’s also puts pressure on vulnerable EM economies that are dependent on USD financing. There are two worrisome signs from a technical perspective. The USD may be in the process of tracing out a double bottom. A greater concern are EM currencies, which are weakening even as the USD fell. This is a negative divergence that investors should keep an eye on.


As well, gold is poised for a correction. Alex Barrow observed that gold prices are 4 standard deviations above its 200 dma. He added, “This has only happened two other times in the last 30-years, in Jan 03′ and May 06′.  Both prior instances led to sharp pullbacks of 18% and 25%, respectively. ”


Lastly, silver has soared against gold prices. Nautilus Research found that past similar episodes have been bearish for silver prices.


These conditions are setting for a disorderly sell-off in precious metals. One possible catalyst is the CARES Act 2.0 impasse in Washington. Arguably, gold and silver prices have been rising because of the reflationary effects of a combination of easy fiscal and monetary policy. As the agreement for fiscal support has stalled, the Fed may be left pushing on a string. These conditions are potentially bearish for gold and silver prices. As I wrote before, a correction in silver after a parabolic rally is another one of my bearish triggers for equities. Watch gold and silver prices carefully for signs of a downside break.


Bond rally = Rising risk aversion

The third, and final bearish tripwire that I identified in the past is a rally in the Treasury bond market. The long Treasury bond ETF (TLT) staged an upside breakout out of an inverse head and shoulders pattern last week, and that breakout has held. Similarly, the 10-year Treasury yield broke down through a head and shoulders pattern, and that breakdown has also held.


This is the most concrete equity bearish signal to be concerned about.

The week ahead

The market broke up out of a short-term wedge, as measured by the percentage of stocks above their 5 dma, which is short-term bullish. Readings are not overbought, which is an indication that there may be further upside potential.


Looking a little longer term, the percentage of stocks above their 10 dma is neutral and rising. Readings are also not overbought, which is also an indicator of possible upside potential.


In conclusion, the intermediate term concerns that I raised a week ago remain in place. Global stock prices are not confirming the strength in US equities. Commodity prices are at risk of falling because of an oversold USD, and excessively bullish sentiment in precious metals. The Treasury market is already sounding a warning. The next 10% move in US stocks is likely to be down rather than up.

In the short run, however, price momentum is positive and the market can go higher. However, there is considerable event risk from growing US-China trade frictions, and constitutional uncertainty over Trump’s Executive Order and Memorandums.

Disclosure: Long SPXU


79 thoughts on “A global and cross-asset market review

  1. I think we’ll see a delayed reaction to the executive orders issued by the President on Saturday. It all sounds quite bullish to me. There is the additional possibility that Congress gets its act together early next week (maybe even today).

    SPX 3397 is an easy target.

    1. I think the democrats will fight this all the way. They want their pet peeves like mail-in balloting and democrat run city/state bailouts, etc. Trump won’t sign a bill with non-covid related relief.

      1. Again, right wing talking points

        They will fight it because congress has the power of the purse

        Dems passed an opening bid in May. Senate and WH say on it until the end, couldn’t agree themselves and still haven’t, and now Trump pulls limp action to show that he is doing something instead of just negotiating with the Dems.

        As far as aid for local gov, this BS about liberals not running blue states well is just that. Look at the numbers on tax contributions. Look at who is taking the money. It ain’t CA or NY. Also, last I checked, rhe virus doesn’t care about political affiliation, and is creating holes in budgets of ALL states. So….just stop.

        1. Good. Then there is no need for any bailouts. You should call Nancy and Chuckie and let them know their $3+ trillion dollar monstrosity is not needed.

          1. Totally missed the point.

            Why should airlines and cruise lines and banks be helped while teachers and police and firefighters and citizens out of a job through no fault of their own not be helped? I could see it if conservatives applied their version of libertarianism equally, at least that is intellectually consistent.

        2. BTW, both Newsom and Cuomo are asking for federal aid so I think your liberal talking points are a bit jibberish.

          1. All I see in your arguments, livewell, are nonsensical liberal talking points. What makes you think teacher, police and firefighters aren’t being helped by what President Trump is doing. They are being helped as much as anyone else. And, when you are talking about public enterprise needing special bailouts you aren’t talking about what the federal government should do. You are talking about state mismanagement. States and cities have the power to tax and fund those services and it is their responsibility to manage and create funds for those services.

          2. The Executive Orders at best only give $300/ week for 5 weeks and borrow from FEMA. A bandaid and he can only circumvent Congress so long. I still think the USPS funding is non-negotiable for Trump which is why he would not compromise even when McConnell was ready to.

          3. Setting aside the political issues surround Trump’s EO and Memoranda, they have severe implementation problems.

            This reminds me of the travel bans put in place when he first came into office. No one could understand the details and they were subject to court challenges. They had to be revised several times before they got them right.

            I’ll have a more detailed analysis tomorrow.

          4. Agreed– beyond the politics it is 5 weeks’ worth of unemployment relief at 50% of what it was before (states are expected to pitch in $100, feds $300), borrowed from FEMA, at the start of hurricane season.

          5. Ok — middle of hurricane/ flood season and beginning of fire season. Pretty sure FEMA will need some of those funds.

        3. You folks really believe the Dems bring action to not pay extra unemployment just before an election ?

          1. I don’t think they will sue Trump to stop it. That would be suicide. But I don’t think they will compromise in Congress enough to get anything passed without their liberal fueled pork. I think their last stand was $2.5 trillion.

    2. Also, tensions are rising over Taiwan, RX. China is moving forces including personnel, missiles and landing craft near Taiwan. There could be a conflict or standoff there sometime before the election.

      1. It wouldn’t surprise me to see President Trump make a statement supporting Taiwan’s full independence right before he leaves office. I can’t think of any former President or current Presidential candidate with the guts (or maybe it’s recklessness) to make that move.

      2. We’ve supported Taiwan’s independence for quite a while with the implication that our military would come to its defense. I’m not sure what a conflict over Taiwan’s independence would do to the markets or even what it would look like, RX.

  2. Top 25 states last week in cases per 100k (source NYTimes), see if you can spot the pattern:

    South Carolina
    North Dakota
    Puerto Rico
    North Carolina
    Virgin Islands

    The point here is this is a national issue. Not a blue state or “those other people” issue. This is a problem that needs big fiscal support and national policy to address.

      1. If the spending is unneeded why did Trump do what he did? If the spending is unneeded, why did the republicans put forth a $1T plan?

        Because things are not good, despite the market, and the economy will need support. This course is not good for any of us. The pain will be longer and deeper because of the lack of compromise. It will eventually hit the market (the reason we’re here on Cam’s site).

          1. A lot of the funding is to avoid layoffs in city and state govts which would prolong recession; contact tracing/ testing, also needed to reopen economy; and funding for public schools to reopen, a huge determinant of whether parents can go back to work or just continue to do virtual learning all year in contrast to the rest of the world.

    1. Hard to say without reading a lot of their commentary, but BIS has the reputation of being highly anti-debt and deficit and they have had a “the world is going to end” message for at least a decade. However, I don’t have a good feel for the tone of the site’s commentary.

  3. Seriously, folks, the political bickering here is out of place, not to mention — how to put this delicately? — not of the highest quality. I am not inclined to spend money for access to a site that permits it.

    1. While true, Jerry, I don’t see you or some others contributing to the market discussions here. I would like to see more opinion from informed sources. Every investor has something to contribute. IMHO Rxchen2 is the best commenter we have here.

      1. Whether you have noticed my comments or not is irrelevant, Wally. Like much of what you post.

    2. maybe it is a sign of the times. Remember how there was populism? This group is like a microcosm, only most of the people here are in the “protected” category, meaning the upper 20% if not higher. I assume all have assets, otherwise why be here? So, if there is this much tension among those who are fortunate, what is it like for the lower 50%? It’s not like we can choose what times we live in, but I have never experienced this kind of stressed world. Admittedly when we had nuclear war drills in the 50s was bad, but I was a kid so I did not feel things the same way. So at the risk of being cliche, “we live in interesting times”

    3. to jerry’s point – this has always been a unique comment section and community of civil market-centric commentary. sure, especially in this moment, it is difficult to separate politics and markets. but if you want to comment on policy decisions, let’s avoid the finger pointing and rely on the data or economic theory that may inform or influence our processes constructively.

  4. Economics and politics are like two strands in a rope. A meaningful debate and comments help influence one’s view of the markets. Cam has been doing it for several weeks. A discussion of various policies under consideration and their impact is worthwhile.

  5. Hi Cam: I am curious have you considered a buy stop or sell stop to initiate your positions which are above or below the SPX trading price a certain percentage? Marty Zweig use to use a 4% stop and reverse for the Value Line. In his case the sequences of losses was very large (draw down). However, in your case your fundamental analysis is excellent and you have also stated in your past letters that you tend to be premature. Would a buy stop and a sell stop help the over all results. Thanks.

    1. Rajiv, I bought some expensive software that had a good real-time track record that was basically a breakout system that entered using stops. No matter how hard I worked with that system I could not make money with it. Too often the breakouts entailed a lot of slippage or they were subject to retracements or traders would break support or resistance just to suck people into the wrong side of the market as it reversed.

  6. Thanks for covering DXY Cam. What is your target? I’ve seen some say $96, others $100.
    I’ve also seen some call for a correction in QQQ which may or may not extend into other indices.
    Finally I wonder if the stimulus was already priced in as it has been the market’s base case and now it is coming out as less than expected and borrowed from another agency.

  7. BTW, Cam, how is your dog doing? I hope you decided to try and save him/her rather than just putting him/her down.

    1. Waiting for biopsy. Looks like cancer but we don’t know yet.

      He is 12, which is old for a greyhound. But does not appear to be in pain, and still a happy dog. So if it is cancer we are not going to subject an old dog like to to major surgery and allow him to let us know when it’s time to go.

      1. Tough decisions. My Rhodesian Ridgeback is 12, too. We’ve been told by her doctors that she isn’t a candidate for any surgery now if anything else comes up. She was given 4 to 18 months 2 years ago May. She is slowly getting weaker but still alive and happy. We just hope it will be sudden when it happens and not painful.

    2. We have a six-year-old Golden Doodle. Until six years ago, I was adamantly against owning a dog. In a moment of weakness, I finally relented and allowed my then 12-year-old youngest son to pick one of twelve in a litter that came up for sale in the Sierra Foothills. Almost a year later, my wife and youngest flew to Hawaii for ten days, leaving me alone with the dog. After ten days of walking/ feeding/ cleaning up after/ playing with the dog, we became inseparable and since then he spends most nights on our bed. Needless to say, he is now a full-fledged member of our family and were he to fall ill I would go to great lengths to ensure he receives whatever he needs. The unconditional love of a dog is one of life’s wonders.

      1. Well said, RX. Our previous Rhodesian broke my heart when she passed. This one will do the same. She’s more than a best friend.

  8. It’s virtually impossible to discuss the markets without referring to political developments that influence the markets. The one instance that comes to mind immediately would be the 2016 election-> the initial reflexive selling + the tremendous rally that followed is understandable only in the context of politics.

    I can understand placing limits on political debate with little relevance to markets – but even then I’m usually able to glean valuable information from either the content or the intensity of the debate.

  9. Re Cam’s reply to Rajiv- I can understand the recent frustration with Cam’s bearish takes. I’ll bet a lot of Warren Buffett’s investors have been frustrated as well. It’s part and parcel of investing.

    Paradoxically, I trust Cam more today than I did when he was batting 1.000. Why? Because I trust him to be honest. Unlike many of the frauds/fakes on financial TV who only trade portfolios in their heads (which allows them be right 100% of the time), real traders with skin in the game will be wrong – often for extended periods. The one thing I value above all else is authenticity – Cam may be going through a tough period right now, but there is no doubt in my mind that he’s the real deal.

    1. I think Cam just has a problem believing the market keeps going up. I have been trying to short this market for ages and keep getting burnt. Confirmation bias. I think a lot of us, seeing the effect of Covid on the economy keep expecting a horrible crash, which I still think is somewhere down the road. Markets can stay irrational longer than you can stay solvent. But isn’t this a sign that the bear is coming? See, confirmation bias.
      Maybe, this is when things break down, what worked in the past no longer does, and maybe this too is we are in an epic market. Like Nikkei circa 1989. Just remember, the higher it goes the more room it has to fall.

      1. Yodoc, I think in Cam’s case it is more that the indicators he has used for years (maybe decades) just aren’t working well right now. I don’t think he should go on a quest for a new type of analysis. I think he should stay the course. Eventually the world and markets will right themselves and the logic of what Cam knows will return.

        I don’t think many knowledgeable traders have done well since late March except those who just follow price. But those people get whipsawed a lot.

  10. I think rxchen is super imposing his take on my question.
    I have been his subscriber from the beginning and know the quality of his work. The question was how to improve a system that is good in order to make it better. As it presently stands it has had certain drawbacks i.e premature signals and excessive exposure on the wrong side of a trade. That is the reason I asked would the results improve by using a buy stop or a sell stop.

  11. It was a full on debate by Wally and Livewell. Nothing nasty or name calling that I can see. I have my political views and am open to hear others air theirs.

  12. Trump on 8-7 sanctioned Hong Kong Leader, Carrie Lam, and 10 other high level leaders from China and HK. There were cheers and Champagne flowing on the streets of HK and so far not much response from China. As I said before, Hong Kongers love Trump. Add Taiwan, South China Sea, Tiktok, Waiwei etc… the temperature is rising and coming to a boiling point.

    1. Mark, so what is the ground level truth about HK? Is China going to eventually take complete control of HK?

      1. I don’t know what you mean by ground level truth. China already has complete control of HK. They arrest citizens at will as was the case last night (our time).

        1. Ground level = from HK = from the shop floor. Yes, I am sure there is stuff on TV and MSM. I take your word that China has taken phull control of HK. Seems to be the truth.

  13. I do like to hear political insights. Markets do not work without left or right leanings. If the debate is relevant to the markets and economy, let it take place, if Cam would agree.
    That said, Rajiv is right. We do need sell or buy stops, as the case may be for trades.
    Rx, Wally, Ellen, Jerry, Livewell, all good points, without acrimony.
    Agree with Ravindra also. Thanks.

  14. Thanks, Mark and D.V. I realize I do sometimes take my politics a bit too far and need to tamp it down quite often. I’ll try harder not to upset some of my friends here. That includes everyone posting or reading here.

    1. That is passion, Wally. It was celebrated as the flavor of the month/year not too long ago. Now passion needs a direct aim. Too bad.

  15. https://www.schwab.com/resource-center/insights/content/us-dollar-outlook-what-could-weaker-dollar-mean-your-portfolio

    Kathy Jones from Schwab makes good points. The USD is toast!! Sorry $ bulls.
    The US is going to keep printing money, which is bearish for the US. When it comes to making money, one needs stability, an assurance of growth which is likely in overseas markets. Kathy Jones is right, I think .
    Short term, may be we get a $ rally that hits gold and strengthens USD. One should sell the $ in this rally and buy gold and non US markets, based on what Kathy Jones is saying, which makes sense to me.
    The more the US prints, more China, other EMs and non-US and hard assets look attractive.

    1. Does seem like USD move is not going to necessarily be sustained. I wonder though if a temporary USD bounce + bounce in VIX + insufficient stimulus or weak/ difficult to implement stimulus in the form of these Executive Orders will contribute to some short term problems in some of the US indices (?). Seems NQ futures tonight are a deviation from the usual 2020 Mon gap up.

      1. Ellen
        Tom Lee’s call for a huge rally in the indices is a call to bank on a solution for the pandemic. At some point, NQ, is gong to hand over the baton to non NQ stocks, which is betting on a US come back. Does that make sense?
        Jeffrey Klientop and Kathy Jones are making a case for Ex US stocks doing better over a longer term, as US leadership rolls over because of higher valuations, huge debt overhang, pandemic subsiding overseas, relative to US, etc.
        US and other central banks are likely to drive interest rates into negative (all the way to 10 years!!), creating a tail wind for gold and other non-US markets (see Cam’s missive).
        Sure, short term pullbacks in the US markets are likely, the $ makes a countertrend rally to 96 on the DXY. This would be bearish for gold, and better entry point.
        A weak $ is bullish for non-US assets, especially EMs. Check out VXUS for longer term.
        Time frames are different for non US assets vs. short term US markets. This may be a time to cut US exposure, add overseas exposure, and gold/silver and possibly bonds (!!).
        Unsure about short term moves in NQ, that said, it is already up tonight by 50 points. ES futures are also rallying. Watch 6 to 6-30 AM for these indices when they usually bottom (!).
        Hope this makes sense, but that is what makes sense to me.

        1. Thanks! Yes I’m thinking short time frames for weakness in NQ and possibly ES… month of Aug seems like a potential time for weakness, which may be short lived if it happens. Stimulus will benefit bank stocks and the recovery could eventually benefit REITS.
          I’m thinking Tom Lee is a bit early…

          1. Ellen
            Check VIX three and six months futures. Both are at support. If support breaks down, we get a rally. Otherwise, we may have a rally in VIX, causing a correction in stocks (which is what Cam is suggesting).

  16. I do not follow these discussions anymore. There are too many garbage posts. The other day, a trump bootlicker posted a link which claimed the CDC was falsifying infection data, in order to harm red states. It’s just a cesspool of uninvestible crazy talk.

    1. I assume that would have been me, Martin. I’m sorry if I upset you.

      But there is a deep state within our government. Even U.S. Senators have said as much. It may not be too organized between departments but one can’t deny that the FBI and possibly all the way up to President Obama were involved. They used the Steel Dossier of falsehoods that was paid for by Hillary Clinton through her attorneys and created as an oppo hit piece that the FBI/DOJ used to start the Mueller investigation and the fake impeachment narrative. No other President has been subjected to such false investigations as has President Trump. We may learn much more about this from Durham in September.

      Regardless, I am truly sorry if I upset you and hope you continue to stick around and post your thoughts.

      1. this has to be parody Wally, it just does… ok you win, you have successfully trolled the board for like six months, can we go back to normal now?

  17. https://finance.yahoo.com/news/goldman-sachs-2021-forecast-gdp-unemployment-rate-earnings-morning-brief-100115722.html

    “We now expect that at least one vaccine will be approved by the end of 2020 and will be widely distributed by the end of 2021Q2,” Goldman Sachs economist Joseph Briggs wrote on Sunday.
    Assume consumer services spending accelerates in 1H 2021.
    2021 GDP up 6.5% from previous 5.6%
    2021 year-end unemployment rate forecast to 6.5% (from 7.0%)
    2021 EPS $170, up 31% YOY
    Expect a package worth at least $1.5 trillion to become law by the end of August

  18. SentimenTrader-

    ‘Risk is high and Dumb Money is confident…and they’ve been exactly right’

    The “dumb money” has been right, and they’re not shy about letting everyone know about it.’

    ‘It’s a pejorative term, for sure, though we don’t mean it that way. It’s just shorthand for those investors who use a trend-following strategy. That can be perfectly valid, and they tend to be successful in riding the meat of a trend. Nothing wrong about that whatsoever. The issue arises when they become so confident that they establish their largest long positions AFTER markets have rallied hard, and their smallest after markets have declined.’

    ‘Only because they tend to be their most exposed near market peaks and least near bottoms, is why they’re classified as “dumb money.”‘

    ‘The indicators we follow that track these investors reached a true extreme a few weeks ago. Because optimism has been high, and some of our studies have had a negative tilt, the Risk Level has been elevated.’

    ‘So far, this high risk has failed to lead to immediate weakness. There is a way to quantify failure called the Brier Score. It looks at predictions versus outcomes, with a higher Score meaning worse predictions.’

    ‘We looked at this when our risk level seemed to be failing in February 2017 and again in December 2019. The conclusion is usually that by the time markets have levitated beyond the typical and people begin doubting the indicators, sentiment has shifted so far that it can’t be sustained.’

    ‘In recent days, the Brier Score for the Risk Level has moved above 85%, meaning that it has failed to lead to the predicted outcomes. It’s not as high as some previous spikes but is rapidly getting there. We spend a lot of time looking at failures in our indicators and models. It’s not navel-gazing or some kind of sick obsession with self-flagellation. But instead of pretending that they don’t exist and everything is perfect, looking at failures can give excellent clues as to whether the market environment has changed.’

    1. RX, I think you are right about the risk, especially if we climb to your 3397 area. I plot a fib series based on monthly option expiry that is at 3393 for the next level. Often those fibs see a bounce in price or a quick run if they are broken.

    2. Feb 2017? The market was rising steadily then, and I see no record of sentiment extremes. Maybe it’s a typo and he was referring to Feb 2018.

  19. Recommend this, from Ben Carlson: ‘The Most Counterintuitive Recession Ever’


    Credit card delinquencies falling, housing starts booming, etc.

    And as regards housing, per ‘The Transcript’: Demand for Homes is Phenomenal’


    You looked at XHB lately?

    I think .5 (!) on the ten year is the line in the sand. Technicals may point lower, but fundamentals don’t support. IMO.

Comments are closed.