This bull run is nowhere near finished

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: Bearish (Last changed from “neutral” on 25-Mar-2024)

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter 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.

 

 

Market structure review

This week I present a review of the overall market structure, starting from a long-term perspective and gradually shortening the time horizon.

 

I am  bullish on stock prices, as evidenced by the positive MACD histogram of the NYSE Composite that acts as a buy signal. In the past, such buy signals are long lasting and the bull run can stretch into years.

 

 

 

Momentum begets momentum

While most technical analysts use the put/call ratio as a contrarian indicator, option sentiment can also be utilized as a momentum indicator as well. The top panel of the accompanying chart depicts the 50 and 200 dma of the equity call/put (not put/call) ratio. In the past, bullish crossovers where the 50 dma rises above the 200 dma have been signals of bullish price momentum that can be long lasting.

 

 

 

Stumbling NASDAQ

Even though the long-term outlook is bullish for the overall market, previously leading NASDAQ stocks are starting to stumble. The NASDAQ 100 has violated a rising relative trend line and relative trend indicators (bottom two panels) are weakening.
 

 

While the analysis of the equity call/put ratio shows a pattern of strong momentum, the analysis of the relative volume of the NASDAQ against NYSE shows relative weakness. Relative volume has not been confirming the NASDAQ 100 advance.
 

 

That said, the artificial intelligence bull is real. We will all be using AI assistants in the near future that will be productivity boosting. However, the AI rally will undergo fits and starts. Should the 12-month normalized performance (black line) pull back to the grey oversold zone, it will be a strong buying opportunity for NASDAQ stocks. This is just a relative correction in an uptrend for AI-related plays.